The Public Policy Institute of California (PPIC) has released new data indicating that inflation in the state is easing, with a recent figure of 2.4%. This marks a significant decrease from the peak levels experienced during the inflation crisis. The Federal Reserve's decision to lower interest rates reflects its confidence in achieving a balance between price stability and labor market strength.
"Californians have now weathered over three years of higher prices. While income has risen notably over that time, inflation has taken a big cut, leaving many just barely ahead of where they were in 2021," stated the PPIC.
Despite economic concerns, Californians remain relatively optimistic about their personal finances. According to PPIC’s September Statewide Survey, 53% expect their financial situation to remain stable over the next year, while 23% anticipate improvement. Household income in California has increased, with median household income rising by 13% from 2021 to 2023.
Certain racial and ethnic groups have seen notable income growth. Pacific Islander/Native Hawaiian and Native American households experienced increases of 21% and 19%, respectively, followed by Black households at 14%. "These racial/ethnic groups started from lower income levels, so their higher growth signals slight narrowing of the median income gap across some groups. However, the gaps remain large: the median Black household earned $67,000 in 2023 compared to $106,000 for white households and $95,000 for Pacific Islanders," noted the PPIC.
Inflation has impacted these gains significantly. Since March 2021, prices have risen by 19%, eroding much of the income increases except for those among Black, Pacific Islander, and Native American households.
In high-income areas like San Francisco and San Jose, real incomes have decreased by up to 3% since 2021 when adjusted for inflation. Conversely, regions such as Bakersfield and Visalia saw post-inflation increases ranging from 5% to 11%.
Wage growth has been most pronounced in lower-wage sectors like leisure and hospitality where average hourly wages rose by 19%, translating to a real increase of only 3%. "This boost...is likely a factor boosting income among households of color in California," said the PPIC.
Professional sectors faced challenges; average wages fell by 14% after adjusting for inflation despite being significantly higher than other sectors at $45.10 per hour at the end of last year.
"With inflation having cooled substantially, future gains in wages and income have a higher chance of feeling like real gains to California households," remarked the PPIC. However, they cautioned that ongoing risks persist due to factors such as volatile oil prices influenced by international markets.