Inflation has been historically high for most of 2021. But the stars are aligning for strong wage growth that could offset it.

• Inflation has been red-hot through much of 2021 — even hotter than historic pay growth for workers.
• The biggest pay rise in a generation has been eaten by inflation higher than 5% for six months.

Wages and inflation are locked in a struggle. Inflation is winning the battle, but wages could win the war.

Data out Friday showed inflation hitting a new concerning high. Prices rose 6.8% year-over-year in November, slightly surpassing the average forecast but still marking the strongest inflation since 1982. Month-over-month inflation of 0.8% marked a slowdown from October's pace but still shows prices climbing at a historically fast pace. If inflation is as transitory as the Biden administration has said, the cooldown hasn't materialized yet.

The report caps half a year of worrying price growth. Year-over-year inflation has sat above 5% for six straight months, more than double the 2% target the Federal Reserve has long held. It's dragged Americans' sentiments to decade lows and emerged as the biggest risk to the economic recovery.

The red-hot price growth has also gouged the pay raises Americans have enjoyed throughout the pandemic. The labor shortage has forced businesses to lift wages at the fastest rate in decades in hopes of attracting workers. The headline increases have been promising, but COVID-era inflation has all but entirely wiped out working Americans' gains.

The current data suggest most people could leave the pandemic with less buying power than when the crisis started, but other indicators point to a more promising future.

For one, it's increasingly likely that inflation peaked in the fall. The supply-chain crisis has eased somewhat in recent weeks, with ports slowly processing bottlenecks. Surveys of US manufacturers show new orders slowing in November, signaling an easing in consumers' voracious demand. Companies simultaneously reported stronger inventory builds, with some firms saying they stockpiled goods to counter supply shortages. As the gap between supply and demand closes, inflation is likely to wane.

"Thanksgiving was weaker than expected, so you'll start to see some aggressive discounting," Susan Sterne, president and chief economist at Economic Analysis Associates, told Insider. "In general, demand is nothing, it just disappears going into mid-January and February until we get into spring."

Even Wall Street investors see inflation cooling. A Deutsche Bank survey of market responses on Friday found expectations that CPI will average 3.8% by the end of 2022 — still high, but a far cry from the 6.8% print in November. Only 2% of respondents said they expect inflation to be above 7%, while 70% said they expect inflation of between 2% and 4.5%.

But where inflation is expected to cool through 2022, worker power will hold strong. Data out Wednesday showed job openings rebounding in October to 11 million, the second-highest level in history. The number of Americans quitting fell to 4.2 million, the third-highest level ever after two straight months of record quits. For every 100 job openings, there were a record-low 67 available workers.

The labor shortage, then, showed no signs of easing in October, and weak November job growth hints the phenomenon will last into 2022. There remain nearly 7 million unemployed Americans, and their slow take-up of open jobs is set to keep wages soaring well after inflation cools off.

Companies are already prepping to give hefty raises next year. Salary budgets are expected to climb 3.9% in 2022, The Conference Board said, citing a November survey. That's up from a 3% estimated increase in April and calls for the largest average pay jump since 2008. By comparison, salary budget increases are expected to average 3% in 2021.

The labor shortage — and the pay hikes that come with it — could therefore linger well past 2022. Extraordinary worker demand looks like it will last several years and could even become a permanent feature of the post-pandemic economy, David Kelly, chief global strategist at JPMorgan, said in a recent note.

The COVID crisis might've restructured the job market entirely, Kelly said. The pandemic disrupted which jobs are needed most, powering a skills mismatch between available workers and open jobs. It could take some time for workers to learn new skills and find a new place in the workforce. The race is afoot to see whether high inflation or wage growth last longer, and it will be run next year.