Inflation came in today at 2.4%, a level last seen in early 2021. Price growth today is less than a third of what it was during the worst of the inflation crisis. And there are signs this crisis may be over: the Federal Reserve has started to lower interest rates, signaling confidence that price stability and labor market strength are coming into balance. 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.

Although Californians express pessimism about the economy, they report their own personal finances are relatively stable. In PPIC’s September Statewide Survey, 53% said they expect their personal financial situation to be about the same a year from now; 23% expect it to be stronger.

This optimism may stem from the fact that household income in California is on the rise. Between 2021 and 2023, the median household saw income rise 13%, from about $85,000 to over $95,000, according to recently released Census Bureau data. That’s higher than in the US overall—both in the level and growth (the US median household earned about $78,000 in 2023). Pacific Islander/Native Hawaiian and Native American households saw the largest increases (21% and 19% growth at the median), followed by Black households (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. The median Latino household saw a 13% increase in income, similar to that of the median Asian household though the latter earns significantly more ($124,000 compared to $79,000).

Inflation, however, ate away much of this income growth. Between the beginning of the high inflation episode (March 2021) and today, prices have increased 19%. So only the largest gains in income—for Black, Pacific Islander, and Native American households—remain positive.

In the San Francisco and San Jose metro areas—where median income is highest—income has fallen since 2021 after accounting for inflation; that is, income dropped 2%–3%. Only two metros where median income exceeds that of the state overall had positive income growth: San Diego and Vallejo (1% after inflation).

Some lower income areas have had the largest increases in median income, including Bakersfield, Visalia, and Redding metros, which saw a 5%–11% increase after inflation. However, not all lower income metros improved in the past two years—after accounting for inflation, median income fell in much of the Central Valley, including in Fresno, Modesto, Merced, and Stockton metros.

Many factors affect household income, including who is working and how much, and to what extent the household relies on wages and salary, business income, or retirement savings (among other sources). Wage rates are a particularly important factor for most households, and wages have changed substantially across California’s major industries in recent years.

Wages have grown the most in some of the lowest-wage sectors in California. The average hourly wage in leisure and hospitality businesses has increased from $21.64 in March 2021 to $25.70 in December 2023—that’s a 19% increase, though only 3% after inflation. This boost, as well as relatively strong wage growth in the trade and transportation and construction sectors is likely a factor boosting income among households of color in California.

At the other end of the spectrum, average hourly wages in professional and technical services (the sector for many tech firms) were much higher than other sectors at $45.10 at the end of 2023; but wages have fallen 14% since 2021, after inflation. Because tech is concentrated in the Bay Area, it’s likely this wage pattern has muted income growth at the household level.

With inflation having cooled substantially, future gains in wages and income have a higher chance of feeling like real gains to California households, resulting in greater purchasing power. Still, prices are much higher today than just a few years ago, breeding stress and a sense of inequity around buying power, as well as adjustments in buying habits.  While today’s news about inflation is another piece of evidence suggesting the high inflation era after the pandemic is likely over, risks remain, especially to volatile areas like oil prices affected by the international market.