UPS said the average full-time driver would earn about $170,000 (£135,000) annually, including healthcare and other benefits, by the end of the five-year contract.
That is up from about $145,000 now.
The raises follow the most serious bout of inflation in the US in 40 years.
Overall prices rose 3% over the 12 months to June, after leaping more than 9% in the prior year.
As rising living costs strain household budgets, labour tensions have boiled over, leading to unionisation campaigns at Starbucks and other companies, and strikes across the country.
The threat of a strike by the Teamsters union hit UPS in recent weeks, as customers diverted about one million packages per day to rival companies, costing the company about $200m in sales.
In a call to update investors on Tuesday, UPS said the deal reached with the Teamsters - expected to be approved by workers in a vote this month - would also weigh on its profits.