Inflation Exacts its Pound of Flesh: How Americans Earned their Income from All Sources except Capital Gains

Americans' inflation-adjusted personal income, excluding government transfers, has shown limited growth since mid-2025, according to the latest data. Despite recent improvements, purchasing power remains below levels seen in late 2025, reflecting the ongoing impact of inflation.

In July, inflation-adjusted personal income—excluding government benefits such as Social Security—rose by 0.19%, marking the third consecutive month of growth after a period of decline. However, this figure remains 0.63% below the September 2025 peak and 0.38% lower than July 2024. Compared to July 2023, income has increased by just 0.86%, illustrating the slow erosion of earnings amid persistent inflationary pressures.

Total personal income, excluding government transfers, reached $21.9 trillion in July on a seasonally adjusted annual basis, according to the Bureau of Economic Analysis. This represents a 0.35% increase from June and a 3.3% rise from the previous year. Wages and salaries, including employer contributions to benefits, accounted for 60% of this income and have increased by 38% since January 2020.

Income from other sources, including investments and entrepreneurial activities, has varied:

Dividend income, which surged during the Federal Reserve’s monetary expansion in 2020–2021, has grown by 68% since January 2020, making it the largest category in this group. Proprietor’s income from small businesses and farms increased by 35% over the same period, trailing wage growth. Interest income rebounded after the Fed’s rate hikes, rising 30% since 2020. Rental income grew by 60%, reflecting sharp increases in housing costs during the pandemic-era inflation spike.

Government social benefits, including direct payments like Social Security and indirect support through Medicare and Medicaid, rose by 0.59% from June and 5.1% year-over-year. However, unemployment insurance payments continued to decline.

Overall, Americans' income growth has struggled to keep pace with inflation, particularly since mid-2025. While wages have risen, the broader economic strain persists, with no significant recovery in purchasing power compared to pre-inflationary peaks.