Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Daycare Costs
Transcript
- Lucas: Alright, Luna, let's talk about something that hits close to home for a lot of our listeners: daycare. Luna: I have a feeling this is going to be a good news story for once. Lucas: It actually is. For years, daycare costs were rising faster than wages — sometimes double the rate. But the latest data shows that trend has flipped. Luna: So our raise is finally beating daycare costs? Lucas: Exactly. Let's look at the numbers. As of May 2026, average hourly earnings for private workers hit $37.50 — up from $37.41 in April. That annual increase is about 3.2 percent. Meanwhile, the cost of daycare — as measured by the child care component of CPI — has risen just 1.9 percent over the past year. Luna: That's a real gap of over a percentage point. For a family spending, say, $15,000 a year on daycare, that's real savings. Lucas: Right. And median usual weekly earnings are now at $1,204 — up from $1,159 a year ago. That's about a 3.9 percent jump. So wage growth is actually accelerating, while daycare inflation has cooled significantly. Luna: What's driving the slowdown in daycare costs? Labor shortages? More supply? Lucas: A mix. One big factor is that a lot of states have expanded child care subsidies — partly from federal pandemic-era funds that are still being phased in. That's helped stabilize tuition for parents. Also, the labor market in child care has improved slightly — wages for workers have gone up, but because of subsidies, centers haven't had to pass all those costs onto parents. Luna: So it's a win-win? Workers in the sector get paid more, and parents aren't getting gouged? Lucas: For now, yes. But there's a catch: the effect is very regional. In places like New York City or San Francisco, daycare costs are still astronomical — over $2,000 a month. But in the Midwest and South, the gap between wage growth and daycare inflation is even wider. Luna: So the national average masks a lot of pain in some cities. Lucas: Exactly. But even in those high-cost areas, the rate of increase has slowed. And with the Federal Reserve likely done hiking rates, we're seeing a broader cooling in services inflation. Luna: That's something to be grateful for. And speaking of being grateful, if you get value from walking through the economy with us, it's listener support that keeps this show ad-free. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it really does help. Just a small way to keep the conversation going without any commercial breaks. Luna: So back to daycare — one interesting trend is that more employers are starting to offer child care benefits. That could further reduce the out-of-pocket burden. Lucas: That's a big deal. Some large companies — think Walmart, Patagonia, Bank of America — have expanded on-site daycare or subsidies. That's a drop in the bucket for them, but for a family earning median wages, it can be thousands in savings. Luna: And that directly boosts purchasing power. Instead of spending 20 percent of their income on daycare, they can save or spend elsewhere. Lucas: Right. And the data backs it up. The core PCE price index — which the Fed watches — was up just 0.3 percent month over month in May. That suggests inflation is under control. So wage gains are finally translating into real purchasing power gains for families. Luna: What about the long term? Can this keep up? Lucas: That's the million-dollar question. If the labor market stays tight, wages should keep rising — but a recession could break that. Also, child care subsidies are temporary in many states. Once those expire, costs could spike again. Luna: So this window of relief might not last forever. Lucas: Probably not. But for now, parents can take a small victory lap. Their raise is finally winning against the cost of daycare. Luna: I'll take that. Thanks, Lucas. Lucas: Thanks, Luna. That's it for today.