Inflation is headed in the right direction – down. Last week we learned that the Consumer Price Index fell 0.1 percent in December. But your budget may still be tight. That’s because we also got numbers on wage growth last year, and it’s official: the average paycheck lagged behind inflation in 2022, and the higher prices are hitting low-wage workers the hardest.

Thirty-nine-year-old Meghan Hullinger is a single mom with four kids. The youngest is three, the oldest is 13. She lives in the mountains of West Virginia and works for a nonprofit doing outreach for people with addiction or mental health problems. She loves her job, but she says her salary of a little under $25,000 a year is no match for inflation.

“No – no, not even close,” she told me emphatically.

Hullinger has figured out that her everyday expenses — food, rent, gas — cost her $1,864 a month.  But the 6.5 percent inflation rate means those same things cost her an extra $121 a month. Hullinger did get a raise last year of around three percent, but that’s half the inflation rate.

“Right, so effectively it’s a pay decrease,” she explained.

Hullinger says her landlord wants to raise the rent. But her budget is already cut to the bone.

“Something small and kind of silly but I don’t buy paper towels anymore – just a million little things,” she said. “You buy generic when you can and you try to repair things instead of maybe buying when you would just go buy something brand new.”

Still…inflation actually fell in the second half of last year. The price of some of Hullinger’s necessities, including gas, is down. Nicole Smith is the chief economist at the Georgetown University Center on Education and the Workforce. She says falling prices mean workers’ real earnings — that is their pay after you account for inflation — is actually rising.

“And that’s after 22 consecutive months of declining wages. So what we’re seeing is it’s moving in the right direction,” Smith explains. “We’re not exactly there yet.”

Take food prices – they’re still up. The cost of eggs soared about 11 percent last month. Hullinger doesn’t feel like her paycheck is going any further at the grocery store.

“Now, even the cheap things are astronomical,” she said. “I remember when you used to be able to get frozen vegetables – a little bag of frozen vegetables – for a dollar. And now it’s like $3.50.”

But Hullinger may get a break on her food bill later this year. Brad Hershbein, senior economist at the Upjohn Institute for Employment Research, thinks inflation will keep coming down gradually.

He said if that happens and the U.S. is able to avoid a recession, “I think it’s possible that earnings for workers even adjusting for inflation could go into the black – could become positive – sometime  in 2023.”

So whatever pay raise Hullinger gets this year could finally mean more money in her pocket.