Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Raises Are Beating the Cost of Lettuce
Transcript
- Lucas: Luna, have you seen the grocery shelves lately? Because if you haven't, walk past the lettuce section and just look at the sticker price. Luna: I actually did see something odd this week — a bag of romaine for under two bucks. I thought it was a typo. Lucas: Not a typo. Headline from this morning: 'Nobody wants it' — lettuce prices are in a record-setting plunge. The cyclospora scare spooked consumers, and suddenly you've got a glut of greens nobody's buying. Luna: So this is a food-safety panic driving prices down? That feels backwards from what we usually talk about on this show — most of the time it's prices going up. Lucas: Exactly, and that's why I thought it was worth drilling into today. Because for once, the thing in your grocery cart is getting cheaper — and it's not because the economy is suddenly fixed. It's a specific, almost weird, supply and demand story. Luna: So let's get into it. What's actually happening with lettuce, and why does it matter for wages and prices? Lucas: So the consumer price index for July came out this morning — headline inflation at 3.4 percent annual rate, up 0.1 percent for the month, right in line with expectations. But underneath that, some food categories are seeing outright deflation. Lettuce is the poster child. Luna: And that's partly because of the cyclospora outbreak, right? People got sick, so demand just dropped off a cliff. Lucas: Right. When you have a parasite scare tied to a specific product, consumers don't mess around. They stop buying it. And growers had already planted for a normal season, so you've got supply still coming in while demand collapses. Prices crater. Luna: So what does that mean for the average worker's paycheck? If lettuce is cheaper, that's a win for purchasing power, isn't it? Lucas: It is a win, but it's a tiny one. Let's zoom out. The average hourly earnings for private workers hit 37.6 dollars in July, up from 37.60 a month earlier — so basically flat month over month. But over the past year, wages are up around four percent. Headline inflation is 3.4. So real wages are still growing, just slowly. Luna: So even with lettuce getting cheaper, the overall picture is that raises are still beating prices. But barely. Lucas: Right. And that's been the theme of this whole series — your raise is finally beating the cost of a lot of things. But lettuce is a special case because it's not about wages catching up; it's about a food-safety scare creating a temporary glut. You can't extrapolate that to the whole economy. Luna: So what should we actually be watching if we want to know whether workers are genuinely better off? Lucas: Look at core inflation, which strips out food and energy. That came in at 3.4 percent annual as well, but the more telling number is core services inflation — that's the stuff that's sticky, like rents and medical care. And that's still running above the overall rate. The Fed's favorite gauge, core PCE, is at 2.3 percent annual as of June. Luna: So the central bank is probably breathing a little easier, but they're not done yet. Lucas: Not at all. The ten-year breakeven inflation rate, which is basically what the bond market thinks inflation will average over the next decade, is sitting at 2.27 percent. That's down from 2.29 last week. So the market is betting the Fed gets inflation down to around their two percent target, but it's not there yet. Luna: So if you're a worker, the lettuce discount is nice, but it's not going to move the needle on your rent or your health insurance. Lucas: Exactly. And that's the real story. The cost of living is a basket of thousands of things, and some are getting cheaper while others are still rising. Your raise has to beat the weighted average, not the cheapest item in the store. Luna: Let's talk about that basket for a second. What's actually still high? We've covered a lot of categories on this show — rent, tuition, car insurance. Where are we now in August 2026? Lucas: The big one is shelter. Rents have moderated but they're still elevated relative to pre-pandemic. And services like medical care and education are still running hot. That's why core inflation is sticky — those aren't things you can substitute away from like you can with lettuce. Luna: So the lettuce crash is almost like a distraction. It makes the headline number look better than the underlying reality. Lucas: It does, and that's a classic CPI quirk. Food and energy are volatile, so a single month's move can swing the headline. That's why the Fed and most economists focus on core. But for your wallet, that cheaper lettuce does help at the checkout counter this week. Luna: And it's a good reminder that prices are not all moving in one direction. Inflation is not a monolith. Lucas: Right. And that's what we've been trying to get at with this whole series — the nuance. Some things are beating your raise, some things are finally not. The question is what that mix looks like over time, not just one month. Luna: So if we're looking at the next few months, what should we watch for? Is there a chance wages start to accelerate again, or is the labor market cooling? Lucas: The employment cost index for wages ticked up to 179 in the second quarter, from 177.5 in the first quarter. That's a measure of total compensation, and it suggests wage growth is still positive but not accelerating. The labor market is cooling slowly, but it's not collapsing. So I think we're in a period where real wages are growing, but modestly. Luna: So your raise is beating prices, but it's not a windfall. It's just enough to keep you from falling behind. Lucas: Exactly. And that's actually a decent place to be, historically. But it's fragile. If inflation spikes again — say, another supply shock — that real wage growth could evaporate quickly. The lettuce story is a reminder that supply can change fast, in both directions. Luna: So for the listener who's doing their weekly grocery run, what's the takeaway? Should they be loading up on lettuce? Lucas: I mean, if you like salad, sure. But don't change your budget over one item. The bigger lesson is to look at your own personal inflation rate — what you actually buy. If you don't eat much produce, the lettuce crash doesn't help you. What matters is whether your raise is keeping up with your own spending pattern. Luna: That's a good practical tip. And it's something we talk about a lot on this show — anchoring to your own numbers, not just the national average. Lucas: And that's why we do what we do. If walking through the economy with us has made something click for you — whether it's understanding CPI or just feeling more confident about your own budget — we're glad. And honestly, the only reason we can keep this going ad-free is that a small group of listeners chips in monthly through buy me a coffee dot com slash fexingo. It's not a big ask, but it's what keeps the lights on and the episodes coming. Luna: Yeah, and it's genuinely helpful. We don't have advertisers pulling the strings, so we can dig into whatever data we think matters, even if it's a random lettuce crash. Lucas: Exactly. So if that's something you value, you know where to find us. And for everyone else, no hard feelings. Now, back to that lettuce — I want to talk about how this connects to the broader food deflation we're seeing in some other categories. Luna: Other categories? I thought it was just lettuce. Lucas: So the CPI report showed that some other fresh vegetables and fruits are also down on the year. Not as dramatic as lettuce, but there's a pattern. You have a few things going on: good harvests, some pullback in demand because of high prices in prior years, and a strong dollar making imports cheaper. So it's not just a one-off scare. Luna: So produce, as a category, is actually a bright spot for consumers right now. That's refreshing. Lucas: It is. And it's a reminder that while the overall inflation rate is still above the Fed's target, there are real pockets of relief. The challenge is that those pockets are not evenly distributed — if you're renting, you're still feeling the squeeze. So the average masks a lot of variation. Luna: And that variation is exactly what we try to unpack on this show. What would you say is the one thing you want listeners to remember from today's episode? Lucas: I think it's this: cheaper lettuce is nice, but don't mistake a one-month grocery deal for a structural change in your purchasing power. The real test is whether your raise beats your personal inflation rate over several years. And right now, for most workers, it is — barely. So enjoy the salad, but keep an eye on the big picture. Luna: That's a good place to leave it. Thanks for joining us, and we'll catch you next time on Wages and Prices.