Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of a Cup of Coffee
Transcript
- Lucas: So the average hourly earnings for private workers hit $37.60 in June. That's up about 24 cents from the month before. Meanwhile, core CPI — which strips out food and energy — actually ticked down slightly to 336.1. That's not nothing. Luna: Right, so wages are still climbing and core inflation is softening. That combo has been the story for a while now. But I want to zoom in on one specific price that people feel every single day. Lucas: Let me guess — coffee. Because that's the one that gets me every morning. And the data actually tells a pretty interesting split between what you pay at the grocery store versus what you pay at a cafe. Luna: Exactly. The Bureau of Labor Statistics tracks coffee prices separately — roasted coffee at the grocery store versus coffee away from home. And the two have been moving in opposite directions. Lucas: Yeah, grocery store coffee prices have actually fallen over the past year — down about 2 percent. Global coffee bean harvests have been strong, and import prices for goods from China hit their highest since 2008, but coffee isn't really a China story. It's more about Brazil and Vietnam. Luna: Right, and the commodity price of arabica beans has been pretty stable. So the raw input cost isn't driving up the shelf price. But go to a cafe and a latte is what, five bucks now? Lucas: Easily. And that's where the wage story gets real. If your raise is 3 percent and your latte went up 8 percent, you're losing ground on that one purchase. But if you brew at home, you're actually ahead. Luna: Which is a great segue into something we hear from listeners a lot — they tell us that breaking down these specific costs helps them think about their own budget. And if you find that kind of analysis useful, we just want to mention that listener support is what keeps this show ad-free and independent. Lucas: Yeah, it's a small thing that makes a big difference. If you've ever thought about it, you can throw a couple bucks our way at buy me a coffee dot com slash fexingo. No pressure, just appreciate you being here. Luna: Totally. So back to the coffee split — the away-from-home coffee index has been running hot. In June it was up about 5 percent year-over-year. That's faster than overall inflation, faster than wage growth for most workers. Lucas: And that's partly about labor costs. Cafes are labor-intensive. The employment cost index for wages went to 177.5 in the first quarter — that's up over a point from the previous quarter. So baristas are getting raises too, and that gets passed on. Luna: Plus rent. Commercial leases are still elevated in a lot of cities. So the cafe has to cover higher rent, higher wages, and higher energy costs. That's why a latte is five bucks even when beans are cheap. Lucas: Right. And the grocery store model is different — they have thinner margins on coffee, but they make up for it with volume and efficiency. So the price at the store reflects the commodity cost more directly. Luna: So for the worker whose raise is 3 to 4 percent — which is roughly what we've been seeing — they're actually gaining ground on grocery coffee but losing ground on cafe coffee. Which means your morning routine matters a lot for how inflation feels. Lucas: Exactly. If you buy a $5 latte five days a week, that's $100 a month. If that latte goes up 5 percent, you're spending an extra $5 a month. On a $60,000 salary, that's not huge. But if you're also paying more for rent, more for insurance, it adds up. Luna: And that's the thing — the headline CPI number looks pretty good. It actually dropped to 332.6 in June from 334 in May. But the composition matters. Some things are getting cheaper, some are still sticky. Lucas: Core PCE, which the Fed watches closely, is still running around 2.6 percent. That's above their 2 percent target. So the Fed is in a holding pattern. Kevin Warsh, who's been in the news lately, has been signaling that they need to see more progress. Luna: Which brings us back to wages. If wages keep growing at 3 to 4 percent and inflation settles at 2.5, then real wages are positive. That's the good news. But it's uneven across categories. Lucas: Yeah, and coffee is just one example. The reason I like it is because it's so universal. Almost everyone has a coffee habit, and the price difference between at-home and away-from-home is a microcosm of the whole inflation story. Luna: So if your raise is 3.5 percent and your grocery coffee is cheaper by 2 percent, you're winning on that front. But if you're a cafe drinker, you're probably feeling squeezed. That's the kind of granularity that doesn't show up in the national averages. Lucas: Right. And the data we have — the median weekly earnings were $1,204 in early 2025. That's up from $1,159. So about 3.9 percent annualized. That's solid. But again, it depends on what you're buying. Luna: Let's also talk about the import price angle. We saw a headline that import prices posted a surprise gain in June, and costs from China hit the highest since 2008. That could feed into some goods down the line. Lucas: Yeah, but coffee imports from China are negligible. It's more about electronics, clothing, furniture. So if you're buying a new laptop, that might get more expensive. But your coffee — not so much. Luna: Unless it's packaged or roasted here using imported beans. But even then, the bean cost is a small fraction of the final price. Most of the cost is labor, rent, and energy. Lucas: So the takeaway is: your raise is finally beating the cost of a cup of coffee — if you make it at home. If you buy it out, the race is tighter. And that's kind of the story of this entire recovery. Luna: It's a good reminder that inflation isn't one number. It's a basket, and your personal inflation rate depends on what's in your basket. Lucas: Exactly. And the data supports that. The 10-year breakeven inflation rate is at 2.28 percent, which suggests markets expect inflation to stay moderate. But the path is bumpy. Luna: So for the worker listening, what's the one concrete thing to take away? Lucas: I'd say: check your own basket. If your biggest expenses are things like rent and medical care, your personal inflation rate might still be high. But if you've been able to shift some spending toward goods that are getting cheaper — like grocery coffee — you might be doing better than the headlines suggest. Luna: And if you're a cafe owner, you're probably still feeling the squeeze from higher wages and rent. But the demand is there — people still want their morning latte. Lucas: Right. The World Cup gave bars and restaurants a boost, according to the Fed's Beige Book. But coffee shops are a different beast. They're more about routine than events. Luna: So bottom line: your raise is finally beating the cost of a cup of coffee — but only if you're willing to brew it yourself. Lucas: And that's a choice more people are making. The data shows grocery coffee sales holding up even as cafe traffic softens slightly. People are trading down without giving up the ritual. Luna: That's actually a pretty optimistic note. The economy is giving us a chance to adapt, and wages are keeping pace enough to make that adaptation possible. Lucas: Yeah. It's not a boom, but it's progress. And for now, that's a story worth talking about.