Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Your Raise Is Finally Beating the Price of Groceries
Transcript
- Lucas: So we've been tracking this trend for a while now — your raise finally beating specific costs. New cars, rent, health insurance, you name it. But there's one category that hits basically every household every single week, and it's taken the longest to turn the corner. Luna: Groceries. Lucas: Groceries. And I think the latest CPI data, which came out last month for June, finally shows a clear break. Overall CPI dipped to 332.6 from 333.98 — that's a decline, not just a slowdown. Meanwhile, average hourly earnings for private workers ticked up to $37.60 from $37.51 in May. So the gap is widening in favor of workers. Luna: Right, but groceries have been stubborn. Even when gas and used cars cooled off, the supermarket stayed hot. What changed? Lucas: A few things. First, input costs — fertilizer, feed, transportation — have come down from their peaks. Second, retailers like Walmart and Kroger have been pushing back on suppliers, refusing to pass through price increases the way they did in '22 and '23. And third, consumer behavior shifted: people are trading down to store brands, buying less premium stuff, and that puts downward pressure on prices across the aisle. Luna: I've definitely noticed that. My local supermarket has eggs at $2.89 a dozen, which feels almost normal. A year ago they were pushing $5. Lucas: Exactly. The Bureau of Labor Statistics data shows the 'food at home' index was actually flat in June, and some subcategories — eggs, fresh vegetables, dairy — saw outright declines. Now, wages are still growing at about 4.2 percent year-over-year. So if your grocery bill is flat or slightly down, your raise is suddenly giving you genuine breathing room. Luna: Let's talk about that raise. The employment cost index for wages was 177.5 in the first quarter, up from 176.23. So it's not just hourly workers — salaried people are seeing bumps too. But is this broad-based, or is it concentrated in certain sectors? Lucas: It's pretty broad. Leisure and hospitality still leads, but even manufacturing and retail are seeing 3.5 to 4 percent increases. The labor market isn't as tight as it was in '22, but employers still can't afford to lose workers — quit rates are still above pre-pandemic levels. So wages keep grinding up. Luna: And the Fed is watching this closely. If wages keep rising while prices stabilize, it's a Goldilocks scenario for consumers. But if import prices start pushing up again — and we saw that headline last week about goods from China hitting their highest since 2008 — that could change. Lucas: Right, that's the wild card. Import prices posted a surprise gain in June, driven largely by Chinese goods. If that filters through to packaged foods, electronics, clothing, then the grocery relief might be short-lived. But for now, the data is pretty clear: your paycheck is winning at the supermarket. Luna: And you know, it's funny — we've been doing these episodes for 118 episodes now, and a lot of them boil down to the same core idea: the economy is made of small transactions that add up. A couple of dollars here, a few cents there. Lucas: Yeah, and that's actually why listener support makes such a difference to this show. We keep it ad-free because we want to follow the data wherever it goes, not sell you something in the middle of it. If walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo. Luna: And it really does. We hear from listeners who say 'that episode helped me understand my own raise,' and that's the whole point. Lucas: Alright, back to the grocery aisle. So we have this window where real earnings are positive for food. But I want to talk about the structural factors that could keep it that way — or reverse it. Luna: What do you mean by structural? Lucas: Well, one is the shift in consumer behavior. People got used to paying $5 for a dozen eggs during the bird flu and inflation spikes. Now that prices are falling, they're not going back to $4.99 — they're looking for the $2.89 option. That creates a new price ceiling. Retailers know that if they raise prices again, they'll lose customers to Aldi or Lidl or store brands. Luna: So the 'sticky' part of grocery prices might actually be unsticking because habits changed. Lucas: Exactly. And on the wage side, the tight labor market isn't just about low unemployment — it's about demographics. The number of working-age people is growing slowly. So even if the economy slows, employers may have to keep wages competitive just to staff stores and warehouses. Luna: That's a pretty optimistic read. But what about the import price data from China? We saw that headline — goods from China at highest since 2008. If tariffs come back or shipping costs spike, doesn't that hit groceries too? Lucas: It does, but mostly on packaged and processed foods — things with supply chains that go through China. Fresh produce, meat, dairy — those are more domestic or regional. So the impact might be uneven. You could see canned goods and frozen dinners get more expensive while fresh stuff stays cheap. Luna: Which means the 'healthy' choice might get relatively cheaper. That's an interesting twist. Lucas: It could be. There's also the World Cup effect — the Fed's Beige Book mentioned that bars and restaurants got a boost from the World Cup, but consumer spending overall had warning signs. If people are eating out less, they're buying more groceries. That demand keeps the grocery market competitive. Luna: And the wholesale price report from last week — producer prices actually declined 0.3 percent in June, thanks to a big drop in gasoline. That feeds into transportation costs for food. So lower diesel prices mean cheaper delivery. Lucas: Right. And the 10-year breakeven inflation rate is at 2.24 percent, up just slightly. So the bond market isn't panicking about a resurgence. That gives the Fed room to ease off if they need to, which would keep the economy humming and wages growing. Luna: So the takeaway for someone listening: if you got a raise in the past year, and you're still spending roughly the same on groceries, you are actually ahead. Not just treading water. Lucas: That's exactly right. And I think it's worth checking your own numbers. Look at your grocery receipts from a year ago and compare them to now. If you're spending the same amount but buying the same or more, your raise is real. If you're spending less, even better. Luna: And if you're not getting a raise — that's a separate conversation. But the data suggests that even in low-wage sectors, there's upward pressure. The median usual weekly earnings hit $1,204 in the first quarter, up from $1,159 a year earlier. Lucas: That's about a 3.9 percent increase. And with CPI actually negative month-over-month in June, that's a real gain. Luna: Alright, so next episode we should probably look at what happens if these trends reverse. But for now, the punchline is: your raise is finally beating the price of groceries. Lucas: And that's a big deal. Because unlike flights or gym memberships, you can't opt out of eating.