Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating the Cost of Car Insurance
Transcript
- Lucas: So we have been running this series for a while now — Why Your Raise Is Finally Beating the Cost of X — and we've covered everything from rent to daycare to used cars. But there's one expense that's been quietly eating into people's budgets for years, and I think the data now shows we might be turning a corner on it: car insurance. Luna: Oh, that's a painful one. I remember my premium jumped almost 30 percent a couple years ago and I still get annoyed thinking about it. Lucas: It has been brutal. From 2021 through 2024, auto insurance premiums rose something like 22 percent annually in some states — way faster than overall inflation. But if we look at the most recent CPI print from May 2026, the index for motor vehicle insurance actually declined month over month for the first time in a long time. Luna: Wait, it actually dropped? That's notable. And at the same time, average hourly earnings have been ticking up — the June data just came in at $37.60. Lucas: Right. So if we compare the two trends: wages up about 4.5 percent year-over-year, while car insurance premiums — after that huge run-up — are basically flat to slightly down. That means, for the first time since the pandemic, your raise is actually outpacing what you're paying to insure your car. Luna: That's a pretty concrete win. And I think it's worth understanding why insurance premiums finally stopped climbing. Is it just that the market corrected, or did something structural change? Lucas: I think there are a couple of things at play. First, the big spike in premiums was driven by supply chain disruptions and used car values going through the roof — insurers had to pay out way more for claims because repair costs and replacement vehicles were so expensive. That's normalized. New car inventory is back, used car prices have come down, so the claims environment is less intense. Luna: That makes sense. But also, insurers have been pushing usage-based pricing — the little dongles or phone apps that track your driving — and that might be helping them price risk more accurately. Lucas: Exactly. Telematics are becoming standard. So good drivers are getting better rates, which pulls the average premium down. And it's not just a niche thing anymore — many of the big carriers now offer some form of pay how you drive. Luna: So if listeners have seen their car insurance go up every renewal for the past three years, this might be the moment to shop around and see if rates have actually dropped. Lucas: Absolutely. And look, I know we talk a lot about macro data on this show, and sometimes it can feel abstract. But if walking through the economy with us has made something click — maybe you finally understand why your insurance bill did what it did — then honestly, if today was worth a coffee to you, that's the link. Luna: Yeah, listener support is genuinely what keeps this show ad-free and independent. So if you've gotten some value out of these episodes, it's just buy me a coffee dot com slash fexingo. Lucas: Okay, back to the numbers. So we have this good news on car insurance, but let's also look at the broader picture. The June jobs report showed payrolls grew by only 57,000, which is pretty soft, and the unemployment rate ticked up to 4.2 percent. Luna: Right, and there was that headline about the labor force participation rate falling to the lowest in 50 years outside of COVID. That suggests some people are giving up looking for work. Lucas: Which is concerning. But the people who are employed are seeing their wages rise faster than inflation in most categories. And car insurance is now one of them. Luna: So the key takeaway: if you have a job, your purchasing power is improving. But the labor market overall is showing some cracks. Lucas: Exactly. And I think the car insurance story is a good microcosm of that. The drivers of the price spikes — supply chain, used car values — were temporary. Now that they've normalized, the pricing pressure is easing. Luna: But insurance is also heavily regulated at the state level. Some states require insurers to get approval before raising rates, and that can slow things down both on the way up and on the way down. Lucas: True. California, for example, has a very strict approval process. So some of the relief might take longer to show up in certain states. But the trend is in the right direction. Luna: And for listeners who want to check if they're paying too much, any tips? Other than shopping around? Lucas: Yes. One: raise your deductible if you can afford it. Going from $500 to $1,000 can knock 10 to 20 percent off your premium. Two: bundle your auto with renters or homeowners insurance. Three: ask about discounts for low mileage, good driving record, or even being a student with good grades. Luna: And check if your insurer offers a telematics program. If you're a safe driver, it could save you a lot. Lucas: Right. And one more thing: insurance companies are starting to use more data to price risk, including credit-based insurance scores in some states. So keeping your credit in good shape can also help with premiums. Luna: That's a good point. So overall, this is one category where workers are finally getting a bit of a break. It's not a huge win — we're talking about maybe a few hundred dollars a year — but it's a win nonetheless. Lucas: Yeah, and I think it's important to recognize these victories because the narrative around inflation can be so gloomy. But if we look category by category, many are actually becoming more affordable relative to wages. Luna: Next week, we'll look at another one. Any hints? Lucas: Let's just say if you have a furry friend at home, you might want to tune in.