Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Your Raise Is Finally Beating the Cost of Imported Goods
Transcript
- Lucas: So import prices surprised everyone in June — they actually posted a gain. And the cost of goods coming in from China hit its highest level since 2008. Luna: That sounds bad. But the whole thesis of this show right now is that raises are finally beating costs. Lucas: Right. And that's exactly the angle here. Because while import prices are up, average hourly earnings are up more. We're at $37.60 an hour as of last month, up from $37.51 in May. That's a 2.4 percent annualized gain. Luna: And the CPI actually ticked down to 332.6 in June. So prices are cooling, wages are still climbing. Lucas: Exactly. The combination means that for imported goods — think electronics, clothing, toys — your dollar is going further relative to your paycheck than it did a year ago. Even though the sticker price might be higher. Luna: So walk me through the mechanics. How is that possible when Chinese goods are more expensive? Lucas: It comes down to two things. First, the dollar has been strong. That offsets some of the price increase from Chinese factories. Second, wage growth has been outpacing overall inflation. So even if the price of a TV from China goes up 3 percent, if your hourly wage went up 4 percent, you're still ahead. Luna: And that's exactly what the data shows. The employment cost index for wages hit 177.5 in January, up from 176.23. So employers are still paying more for labor. Lucas: And the breakeven inflation rate — that's the market's expectation for inflation over the next ten years — sits at 2.25 percent. That's actually a touch above where core CPI is running. So the market thinks inflation will stay moderate, not spike. Luna: But the import price headline — goods from China at 2008 highs — that feels like a warning sign. Especially with the Hormuz tensions and China's growth slowing. Lucas: It is a risk. Renewed Hormuz hostilities have the ECB rethinking rates. And China posted its slowest quarterly growth since 2022 — investment is slumping, and there are calls for stimulus. If the global supply chain gets disrupted, import prices could jump further. Luna: But even in that scenario, wage growth might keep up. Because the labor market is still tight. Lucas: Exactly. And that's the key point for listeners. The narrative has shifted from 'everything is getting more expensive' to 'your raise is finally catching up.' Especially for goods, not services. Services inflation is stickier — think rent, insurance, medical care. Luna: We've covered a lot of those in recent episodes. Car insurance, home insurance, doctor visits. Goods are the one area where the consumer is finally getting a break. Lucas: And it's not just a break — it's a real improvement in purchasing power. Median usual weekly earnings are now $1,204, up from $1,159 a year ago. That's almost a 4 percent gain. Meanwhile, core PCE, the Fed's preferred measure, is running at about 2.6 percent. Luna: So on imported goods, the math works. Your raise is beating the price increase. Lucas: For now. The big wildcards are geopolitics and the dollar. If the dollar weakens, import prices go up in dollar terms. And if Hormuz escalates, energy costs ripple through everything. Luna: But the fact that we're even having this conversation — that wages are finally winning on something — is a big shift from a year ago. Lucas: Absolutely. And it's worth pausing here — because the kind of data we're digging into, the reason we can have this conversation ad-free and without a paywall, is that listeners like you support the show. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it really makes a difference. And we're grateful. Lucas: So back to the import picture. One category where you really see the shift is electronics. Think laptops, phones, smart home devices. Those are heavily imported from China and Southeast Asia. Prices there have been relatively flat or even declining in some cases. Luna: Because of intense competition and tech improvements. Lucas: Right. And wage growth means you can buy that new phone with fewer hours of work than you could two years ago. That's real purchasing power. Luna: What about clothing? That's another big import category. Lucas: Clothing prices have been creeping up — about 2 percent year over year. But wage growth is still ahead. So the average worker can buy a similar basket of clothes with a slightly smaller share of their weekly paycheck. Luna: It's not a huge victory, but it's a victory. Lucas: Exactly. And that's the theme of this series. We're not saying inflation is gone or everything is cheap. We're saying that for many categories, wage growth has finally crossed the threshold where it beats price increases. Luna: And import goods are the latest example. So what should listeners watch for going forward? Lucas: Two things. The dollar index — if it weakens, imported inflation could pick up. And the next CPI report. If core services inflation starts to slow, that's when the Fed might ease off. But that's probably a 2027 story. Luna: For now, the takeaway is: your raise is finally beating the cost of imported stuff. Enjoy that new phone. Lucas: Just maybe don't finance it at 25 percent APR.