WASHINGTON — Worker wages continued to rise faster than inflation during the first quarter of 2026 despite higher energy prices linked to the conflict involving Iran, according to a Treasury Department assessment released as policymakers monitor the economy's response to increased fuel costs.
In its quarterly economic policy statement published in May, the Treasury Department said wage growth remained ahead of inflation in the first three months of the year, supported by a resilient labor market and steady employment gains. Treasury reported that average hourly earnings increased 3.5% over the 12 months ending in March, while inflation-adjusted earnings were 0.3% higher over the same period.
“Importantly, worker wages continue to outpace inflation, even despite elevated price levels associated with the Iranian conflict,” Treasury said in the report prepared for the Treasury Borrowing Advisory Committee.
The department said labor market conditions remained stable during the quarter. Average monthly private-sector payroll growth accelerated compared with 2025 levels, while job openings increased modestly and layoffs remained low by historical standards. Treasury also cited continued growth in business investment and consumer spending as signs of economic resilience.
According to the U.S. Bureau of Labor Statistics, labor productivity in the nonfarm business sector increased 2.8% from a year earlier in the first quarter. The agency reported that real hourly compensation rose 0.6% over the previous four quarters, indicating that earnings growth exceeded inflation during that period.
Treasury said rising domestic oil production and releases from the Strategic Petroleum Reserve helped reduce the economy’s vulnerability to energy-price fluctuations. Nevertheless, officials acknowledged that energy costs increased during the quarter and contributed to higher headline inflation readings.
The report comes as more recent inflation data show stronger price pressures. Consumer prices rose sharply in May, driven largely by energy costs, according to reports published this week. Some private-sector measures suggested inflation has recently accelerated faster than wage growth, although those figures reflect conditions after the first-quarter period covered by Treasury’s report.
Economists have closely watched the relationship between wages and inflation as the Federal Reserve evaluates price trends and labor-market conditions. Treasury argued that wage increases were not a significant source of inflationary pressure, citing productivity growth and moderate increases in labor costs.
As of Friday, federal data continued to indicate a stable labor market with positive real wage growth over the year through March. Updated figures covering the second quarter have not yet been released, and officials said the effect of continued energy-price volatility on wages and inflation remains under review.
