Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Finally Beat Rent Growth in Small Cities
Transcript
- Lucas: So here's a number that caught my eye this week: average hourly earnings for private workers hit $37.50 in May. That's up from $37.41 in April — not a huge monthly move, but the annual pace is still running near four percent. Luna: And CPI came in at 4.2 percent annually — so wages are still beating headline inflation, but barely. The May CPI print was the highest in three years. Lucas: Right. And that's driven a lot of the coverage we've done — energy, food, core goods. But there's one category that's been a stubborn pain point for years: rent. Shelter inflation has been sticky. But I've been looking at some metro-level data that tells a more interesting story. Luna: Let me guess — it's not the coastal metros. Lucas: Exactly. In places like Boise, Idaho; Knoxville, Tennessee; even Spokane, Washington — rent growth has slowed dramatically. In some cases, it's actually below wage growth for the first time since the pandemic. And that's a big deal. Luna: Because for years, the narrative was: you can get a raise, but your rent eats it. Especially in these mid-sized cities that saw huge migration inflows during 2020 and 2021. Lucas: Yeah. Between 2020 and 2023, Boise rents surged something like 40 percent cumulative. Wages didn't keep up. But now the picture has flipped. Let me give you the headline: in Boise, year-over-year rent growth is down to about 2.5 percent. Meanwhile, local wages are up around 4.5 percent. So you've got a two-percentage-point gap — in the worker's favor. Luna: That's a real reversal. What changed? Is it just that people stopped moving there? Lucas: Partially. Migration has slowed. But there's another factor: a ton of new apartment supply has come online. In 2024 and 2025, developers finished projects that had been in the pipeline since the low-interest-rate era. Boise alone added nearly 3,000 new units. That puts downward pressure on rents. Luna: So supply-side relief. That's the classic fix. But it only works if demand doesn't surge again. Lucas: Right. And demand is still there — Boise's job market is strong, unemployment is low. But the combination of wage growth and rent deceleration means that the typical renter in these cities is seeing real purchasing power improve for the first time in years. Luna: I want to zoom out. Nationally, CPI rent is still running at about 4.2 percent annually. So this is a regional story, not a national one. Lucas: Absolutely. If you're in San Francisco or Manhattan, rent is still climbing faster than wages. But in about a dozen mid-sized metros — mostly in the Sun Belt and Mountain West — the equation has changed. And that's interesting because those are exactly the places where affordability was most stretched. Luna: You know, honestly, if walking through the economy with us has made something click — like, if you now understand why your rent and your raise are finally moving in the right direction — that's because we do this show ad-free and independent. Lucas: Yeah. And if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. It's the smallest possible way to keep this going. Luna: Exactly. No pressure. But it matters. So back to those cities — what about Knoxville? I've heard it's a boomtown. Lucas: Knoxville is a great case. It's had a huge influx of manufacturing and logistics jobs — partly because of the CHIPS Act and reshoring. Wages in the Knoxville metro grew about 5.2 percent year-over-year. Rent growth? About 3 percent. So that gap is even wider. Luna: And that's not just a statistical curiosity. That means a typical worker there has an extra hundred dollars or so a month after rent compared to two years ago. That's real money. Lucas: It is. And it changes behavior. I was reading a report from the Atlanta Fed that showed that in these metros, consumer confidence among renters has ticked up noticeably. People feel less squeezed. Luna: But there's a flip side. If wage growth continues to outpace rent in these cities, does that attract more people and push rents back up? Lucas: That's the big risk. If the affordability gap widens, you could see a second wave of migration. And if supply doesn't keep up — remember, construction is slowing because of higher interest rates — then the rent relief could be temporary. Luna: So it's a window. Not a permanent shift. Lucas: Exactly. And the window might be six to twelve months. That's why I think the policy question becomes: how do you sustain the supply side? Zoning reforms, density bonuses, things that keep construction viable even when rates are high. Luna: We should mention that the national numbers still show a tight rental market. Vacancy rates are around 6 percent — not terrible, but not loose either. Lucas: Right. And the PCE rent measure, which the Fed prefers, is still running above three percent. So we're not out of the woods. But for the first time in a long time, the wage side is winning in a few places. And that's worth paying attention to. Luna: I think the key takeaway is: check your local data. National averages obscure huge variation. If you live in Boise or Knoxville, you're probably feeling better than if you live in Boston or LA. Lucas: And that's the kind of granularity we need when we talk about the cost of living. Because a raise isn't just a number on a paycheck — it's what that number can actually buy where you live. Luna: Alright, next time we should look at whether this rent relief is showing up in the CPI data yet. Because the May CPI didn't show it nationally. Lucas: It lags. The CPI rent measure is based on a survey that updates slowly. So the Boise effect might take six months to show up in the national index. But it's coming. Luna: Something to watch. For now, if you're in a smaller city and your rent hasn't gone up much, you're not imagining it. Lucas: Yeah. And if you're not, well, maybe it's time to look at the map.