If it feels like your paycheck is going further than it has the past couple of years, it's not your imagination.

This week's inflation report revealed a disappointing rise in overall inflation but further progress in slowing consumer price increases that have strained U.S. households since early 2021.

Annual inflation was 3.4% in December, up from 3.1% the prior month. A core reading that excludes volatile food and energy items dipped to 3.8% from 4% amid rising rent and used car prices.

The consumer price index, though, would still be well above the Federal Reserve’s 2% goal.

But by another yardstick – purchasing power – households recently have returned to their pre-inflation financial health, according to some studies.

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“It’s pretty clear that people’s income and purchasing power have caught up to inflation,” says Mark Zandi, chief economist of Moody’s Analytics.

The trend, if it persists, could make Americans feel increasingly better about the economy and bolster President Joe Biden’s reelection chances, Zandi says.

Several months ago, 70% of Americans said the economy was getting worse and 84% said their cost of living was rising, according to an exclusive poll by Suffolk University Sawyer Business School and USA TODAY. Survey respondents said they trusted Donald Trump, rather than Biden, to fix it.

But consumers are quietly feeling some improvement in their household finances, Zandi says, noting consumer confidence last month reached the highest level in two years.

What is meant by purchasing power?

Purchasing power is how much people can afford based on their costs and their income. In 2021 and 2022, when inflation was surging, wage growth was also rising but not nearly as sharply, leaving many Americans struggling to pay the bills. In June 2022, 9.1% annual inflation dwarfed average yearly pay increases of 5.4%.

Inflation was leaping largely because of pandemic-related supply chain snarls while wages were spiraling higher due to pandemic-induced labor shortages.

Last May, wage growth began outpacing inflation, a trend that has continued. In November, inflation was 3.1% while hourly earnings rose an average of 4.1%, according to the Labor Department.

Yet for most of 2023, consumers’ paychecks still hadn’t caught up to the big run-up in prices the previous two years and so their overall purchasing power was less than it was before the price spike.

By some measures, that’s still the case. From the first quarter of 2021 to the third quarter of 2023, consumer prices rose 16%, based on the consumer price index, while wages have increased 12.7%, says a study by Bankrate analyst Sarah Foster. Foster looked at wage increases in the Employment Cost Index rather than the average hourly earnings tracked in the monthly jobs report.

“The gulf signifies that there still been some wage destruction, and consumers aren’t used to it,” Foster says.

Some economists rely on other gauges to assess purchasing power. From March 2021 to November 2023, a different inflation measure that the Fed prefers – called the personal consumption expenditures price index – rose 13.2% while average hourly earnings increased 14%, notes Brad Hershbein, senior economist at the W.E. Upjohn Institute for Employment Research.

On that basis, households have more spending firepower than they did before the inflation spurt.

In 2021 and 2022, federal employee Felicia Young of Tampa, Florida, was getting 1% to 2% raises while her rent, groceries and other expenses were soaring. So she cut her 401(k) contribution to 3% of her monthly pay from 5% and started taking just one vacation each year instead of her traditional two or three.

Last year, Young, 57, got a 4% raise as well as a further bump as part of a promotion and is receiving another 5% increase this month. But the extra money, she says, is largely going to her rent, which has nearly doubled to $1,525 in the past couple of years, as well as groceries and other essentials.

“These raises keep my head above water,” she says.

What is household personal disposable income?

Another way of measuring purchasing power is by looking at personal disposable income – wages as well as interest, dividends and Social Security checks, among other payments – after adjusting for inflation. Zandi says that’s a better measure because it accounts for all income, not just pay.

By that barometer, purchasing power almost certainly returned to its June 2021 level in December, a finding that will be underscored by a report later this month, Zandi says.

(Zandi says he prefers to use June rather than March as a base because inflation was unusually low in 2020 amid the pandemic and so was it simply catching up to a normal level from March through May 2021).

The Treasury Department, relying on yet another measure of purchasing power, found that inflation-adjusted weekly earnings increased 1.7% from 2019 to 2023, according to a report last month. Put another way, a worker earning the median pay of $58,140 in 2023 would have had an extra $1,000 left over if they bought the same goods and services as they did in 2019, the Treasury said.

There’s an argument for using purchasing power before the pandemic as a base for comparison because the health crisis severely skewed both income and prices, Zandi says.

Overall, a return of household purchasing power to its pre-pandemic, or pre-inflation, level is good news.

But, Zandi says, “It’s not great.”

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What is the simplest definition of productivity?

Normally, he says, income shouldn’t just keep up with inflation but should solidly outpace it because of growth in productivity, or output per worker, as a result of new technology or other improvements. In other words, employers should give workers raises based on both inflation and productivity gains, Zandi says.

In the third quarter, productivity grew 2.4% annually, the most in more than two years.

Young, the federal employee, would like to see inflation fall further while her raises increase. That could allow her to take more vacations and restore her previous 401(k) contribution.

For now, she says she's "treading water."