Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / Why Your Salary Is Not Keeping Pace With Inflation
Transcript
- Lucas: If you've looked at your paycheck lately and felt like it's not stretching as far as it did a year ago, you're not imagining it. Luna: I know exactly what you mean. My own grocery bill is up maybe 15 percent from two years ago, but my salary? Not even close to that. Lucas: That's the disconnect we want to dig into today — the gap between what prices are doing and what wages are doing. According to the latest CPI data from May, headline inflation is still running hot. The CPI index hit 334, up from 332 the month before. Core CPI, which strips out food and energy, is at 336. Luna: And yet, wage growth has been slowing. The average hourly earnings number we've seen is around 4 percent year-over-year, but that's nominal. Once you adjust for inflation, real wages are actually negative. Lucas: Exactly. If this conversation is helping you think about your own financial situation, here's the thing — the reason we can have these detailed conversations without ads is that listeners like you support the show. You can head to buy me a coffee dot com slash fexingo and throw in a few bucks if you find value in what we do. It's what keeps us ad-free and focused on topics like this. Luna: Yeah, it really makes a difference. And speaking of making a difference, let's get into why wages are lagging and what you can actually do about it. Lucas: So the big question is: why aren't wages keeping up? Part of it is the Fed's rate policy. The effective fed funds rate is at 3.63 percent right now, and the Fed has been on pause since late last year. That's cooling the economy, but it's also cooling the labor market. Employers are hiring less aggressively, and that takes the pressure off them to raise wages. Luna: Right, it's a balancing act. The Fed wants to tame inflation, but their tool — higher interest rates — works partly by weakening the job market. So while prices are still rising faster than the Fed would like, wage growth is being deliberately held back. Lucas: And it shows. If you look at the breakeven inflation rate — that's the market's expectation for inflation over the next ten years — it's now at 2.29 percent, down from 2.32 last week. That suggests investors think inflation is gradually coming down, but it's still above the Fed's 2 percent target. Luna: So the message from the bond market is: inflation is sticky, but not accelerating. Meanwhile, workers are stuck in the middle. They're seeing prices go up, but their paychecks aren't adjusting fast enough. Lucas: That's the real-world impact. Let's talk about what a typical worker might be experiencing. If you're earning $60,000 a year and inflation is running at, say, 3.5 percent, you need a raise of at least $2,100 just to maintain purchasing power. But the average raise in 2025 was around 4 percent? That's $2,400, so barely ahead. And in 2026, with core CPI still above 3 percent, even a 4 percent raise leaves you treading water. Luna: And that's if you get a raise. Many people in service industries or smaller companies haven't seen that. The JOLTS data has shown openings declining, so workers have less leverage to demand more. Lucas: So what can people do? One strategy is to negotiate your salary based on inflation data, not just company performance. If you can point to CPI numbers — like core CPI at 336 — you can make a case that a cost of living adjustment is justified. It's not greedy, it's math. Luna: I like that. It's factual, not emotional. Another thing is to invest in skills that are in high demand. If you're in a field where wages are rising faster — like healthcare or tech — you might have more bargaining power. But if you're in retail or hospitality, it's tougher. Lucas: Exactly. And we should mention that the stock market has been rallying — the S&P 500 is at 7,511, up 3.4 percent in five days. That's partly because investors think the Fed is done hiking, which is good for stocks, but it doesn't directly help your paycheck. Luna: Right, the wealth effect is real for people who own stocks, but most households' primary asset is their labor. If wages don't keep up with inflation, even a soaring stock market doesn't help pay the rent. Lucas: So here's the bottom line: inflation is running around 3 to 4 percent, wage growth is around 4 percent nominal, so real wages are flat or slightly negative. The Fed's rate pause at 3.63 percent is designed to cool the economy, but it's also keeping wage growth in check. For the individual worker, that means you have to be proactive. Luna: And that includes looking beyond your salary. Could you pick up a side gig? Or invest in a certification that boosts your hourly rate? Even small adjustments can offset the inflation drag. Lucas: Absolutely. And we'll keep tracking this. Next time, we might look at how inflation is hitting different income brackets differently. For today, the takeaway is: know your numbers, negotiate with data, and don't assume your employer will automatically adjust for inflation. Luna: Thanks, Lucas. And if this episode helped you think about your salary differently, you know where to find us — buy me a coffee dot com slash fexingo. We'll be back tomorrow with more.