Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Wage-Price Gap That Is Squeezing Your Wallet
Transcript
- Lucas: If walking through the economy with us has made something click, and you want to keep this kind of sharp, ad-free analysis coming, honestly if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. Luna: Exactly. It really does help keep the lights on here. So, looking at the latest numbers from August, the headline story seems to be that inflation is stubbornly sticking around while wages aren't keeping pace. Lucas: Right. And that phrase 'not keeping pace' is doing a lot of heavy lifting because it’s technically true but practically misleading. Let’s look at the core CPI, which stripped out food and energy, sitting at 337.8 as of early August. That is up from 336.79 just a month prior. Now, compare that to average hourly earnings for private workers, which ticked up slightly to 37.80. On paper, both numbers are moving up. But when you do the math on what that actually buys you, the picture gets grim very fast. Luna: It feels like we’re hearing about this wage-price squeeze every week now. Does the data support that it’s getting worse, or is it just staying stuck? Lucas: It’s getting worse because the margin for error is vanishing. Remember last month when we talked about movie tickets and wedding costs? Those were niche comparisons. This time, we have to look at the broader basket. The Employment Cost Index for wages came in at 179.0, up from 177.50. That sounds modest, but remember, employers are paying more than just base salary—benefits, taxes, everything. If your take-home pay isn’t growing faster than that 179.0 index, you are effectively losing ground even if you got a raise. Luna: So even if I got a three percent raise, if my costs went up four percent, I’m poorer. That seems obvious, but people don’t always see it until they check their bank account. Lucas: Precisely. And here is the concrete thing you can mention to a friend: the median usual weekly earnings were reported at 1,204.00 back in January, and while that number has gone up since then, the rate of increase has slowed down significantly compared to the CPI climb. We are seeing a divergence where prices are accelerating while wage growth is plateauing. It’s not that wages are falling; it’s that they are being left behind by the price tag attached to them. Luna: That plateauing wage growth is interesting. Is that happening across all sectors, or is it mostly in services where the labor market is tightest? Lucas: It’s widespread, but the pain points are different depending on where you work. In the service sector, we saw earlier episodes discussing how tips and overtime used to buffer these gaps. But with the Consumer Outlook plunging in September as mentioned in the headlines, discretionary spending is drying up. That hurts service workers most directly. Meanwhile, in manufacturing and tech, the pressure is more about job security and hiring freezes rather than immediate wage cuts. The result is a unified feeling of insecurity across the board. Luna: And that insecurity feeds right into the Fed’s dilemma, doesn’t it? They are trying to cool inflation without crashing the labor market. Lucas: They are absolutely trapped. Warsh and the rest of the Fed girding for an expected interest rate hike right now is a direct response to this exact dynamic. When the ten-year breakeven inflation rate creeps up to 2.37, as it did yesterday, the market is telling the Fed that they haven’t won yet. If they cut rates too soon, inflation expectations get anchored higher. If they hike too hard, those workers whose wages are stagnating get squeezed out of jobs entirely. Luna: It feels like a lose-lose for the average listener. If rates go up, borrowing costs rise. If they stay high, unemployment might creep up. Lucas: Well, it’s a tightrope walk, but let’s look at the PCE price index, which is the Fed’s preferred measure. It sat at 131.7 in July, up slightly from 131.45. Core PCE was 130.7. These numbers are sticky. They aren’t dropping off a cliff. That stickiness means the Fed has to keep pressure on. For you and me, that translates to higher credit card APRs and potentially higher mortgage rates for longer. The cost of carrying debt is part of that inflation equation we’re tracking. Luna: So when people complain about their paycheck not going as far, it’s partly because the cost of maintaining their current lifestyle has just quietly become more expensive, even if their gross pay stayed the same. Lucas: Exactly. And there is another layer to this: the composition of what we buy. Earlier in the year, we saw huge swings in energy prices affecting the headline CPI. But now, with energy somewhat stabilized, the pressure is shifting back to services and shelter. Shelter costs lag, meaning the rent and housing inflation we felt last year is still showing up in August’s data. You are paying for decisions you made twelve months ago, while your wage adjusts only once a year during performance reviews. Luna: That lag effect is brutal. It means you’re constantly playing catch-up instead of ever really getting ahead. Lucas: It’s a structural drag on wealth accumulation. Think about savings rates. If your income grows two percent and your expenses grow three percent, you either dip into savings or you stop saving altogether. The Employment Cost Index tells us businesses are paying more, but they are also passing those costs onto consumers. It’s a feedback loop. Higher wages for employees mean higher prices for customers, which erodes the value of those wages again. Luna: Is there any sector that is bucking this trend? Where are wages actually outpacing inflation right now? Lucas: Healthcare and some specialized professional services are seeing stronger wage growth, largely due to labor shortages and the high cost of replacing experienced staff. But for the vast majority of workers in retail, hospitality, and general office administration, the wage growth is barely covering the core CPI increase. We are seeing a bifurcation of the labor market. One group is winning big, and the other group is just trying to maintain their standard of living. Luna: That sounds exhausting. How should listeners think about budgeting in this environment? Do they need to cut back aggressively? Lucas: I wouldn’t say cut back aggressively unless you have to. Instead, focus on substitution and timing. Look at the CPI components. Food prices are volatile. Energy is stabilizing. Services are sticky. If you can delay large discretionary purchases—like home renovations or new cars—you might wait for the Fed to signal a pivot, which could lower borrowing costs. But for essentials, you’re just locked in. The key is to protect your liquid cash reserves so you aren’t forced to sell investments at a loss or high-interest debt when prices spike unexpectedly. Luna: So liquidity is king right now. Keeping options open because you never know if that grocery bill is going to jump another five percent next month. Lucas: Exactly. And one more concrete point: watch the Job Openings and Labor Turnover Survey, or JOLTS. When job openings drop, wage growth usually follows. We haven’t seen a massive drop yet, but the momentum is slowing. If you are negotiating a raise, use that data. Point out that while productivity is stable, inflation is eating your real income. It gives you leverage that wasn’t there two years ago. Luna: That’s a great tactical tip. Using macro data in micro negotiations. I’ll have to try that next review cycle. Lucas: Do it. And remember, the goal isn’t necessarily to get rich quick in this climate. It’s to preserve what you have. The gap between nominal gains and real losses is narrowing, which means small wins matter more. A two percent raise that beats your local inflation rate is actually a success story, even if it doesn’t feel like one on the surface. Luna: Reframing success from 'getting richer' to 'staying flat' is a tough pill to swallow, but it’s the honest truth of 2026. Lucas: It is. And as we head into Q4, with the Fed likely holding rates steady or hiking slightly to anchor expectations, that discipline will be tested. Keep an eye on the Core PCE numbers next month. If that 130.7 figure starts creeping toward 131.0 or higher, expect the squeeze to tighten further. Until then, it’s about managing your personal balance sheet with eyes wide open. Luna: Thanks for breaking that down, Lucas. It’s reassuring to have the numbers explained without the panic. Lucas: Anytime. Stay sharp out there.