Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Beating Inflation But Not Utility Bills
Transcript
- Lucas: So you got your raise. Maybe it was three and a half percent, maybe four. You felt good about it. But then you opened your utility bill and that feeling evaporated. Luna: Right. It's like the money lands in your account and leaves through the gas meter before you even touch it. Lucas: Exactly. And we've been talking a lot on this show about how wages are finally beating headline inflation. The May CPI came in at four point two percent annually. Average hourly earnings are up to thirty-seven fifty an hour — that's about a three-point-eight percent year-over-year gain. So real wages are positive, but barely. Luna: And the gap closes fast when you look at specific categories. We did an episode on energy prices stealing your raise back in episode forty-five. But utilities are different from gasoline. Lucas: They are. Gasoline you can maybe drive less. But you can't decide not to heat your water or run your fridge. Utilities are the fixed cost that keeps climbing. Let's look at the actual numbers from the May CPI report. Electricity alone is up six point eight percent year over year. Piped gas — natural gas — up twelve point four percent. Water and sewer, up five point two percent. Luna: So your three-point-eight percent raise is competing against double-digit increases in natural gas. That math doesn't work for most households. Lucas: It works only if your utility bill is a small share of your spending. For higher-income households, utilities are maybe three to four percent of monthly outlay. But for lower earners, that share can be eight, ten, even twelve percent. So when gas goes up twelve percent, it's taking a real bite out of the raise. Luna: And it's not a one-month spike. Utility inflation has been running hot for over a year now. The ten-year breakeven inflation rate just dropped to two point two nine percent, which suggests the market thinks overall inflation will cool. But utilities don't track the business cycle the same way. Lucas: That's the key insight. Utility prices are driven by rate cases, fuel costs, and infrastructure investment — things that move on a multi-year timetable, not month to month. The wholesale energy price surge we saw in May — producer prices rose one point one percent, more than expected, driven by energy — that eventually flows through to your residential bill. But there's a lag. So even if wholesale gas prices fall next month, your bill might not drop until next year. Luna: And in the meantime, the rate cases keep coming. I was looking at filings from a few major investor-owned utilities. They're asking for increases of six to nine percent annually, citing grid modernization and wildfire mitigation and renewable integration. Regulators often approve less than requested, but it's still upward pressure. Lucas: Right. So the question becomes: what does your raise actually buy after utilities? Let's use a concrete example. Suppose someone earning the median weekly wage of twelve hundred and four dollars — that's about sixty-two thousand seven hundred a year — gets a four percent raise. That's about forty-eight dollars more per week before tax. Luna: Forty-eight dollars. Sounds decent. Lucas: It does. But if their combined electricity and gas bill went up twelve percent, and they were spending say a hundred and fifty a month on those, that's an extra eighteen dollars a month. That's four-fifty a week. Suddenly the raise is more like forty-three-fifty. Luna: And that's before you account for rent, which is still rising. Or groceries. It's death by a thousand cuts, but utilities are a particularly sharp cut because they're non-negotiable. Lucas: And unlike rent, you can't shop around. In most markets, you have one electricity provider, one gas company. You can't switch to a cheaper utility the way you can switch insurance companies. Luna: We should mention that not all utilities are rising equally. Water and sewer are usually regulated differently — they're often municipal or quasi-public. Their increases tend to be smaller but steadier. The big volatility is in natural gas, which is tied to commodity markets. Lucas: And that's been compounded by global events. The ECB just hiked rates for the first time since twenty twenty-three because the Iran conflict is pushing up energy costs. That's a reminder that utility inflation isn't just a domestic story. It's global. Luna: So if you're listening and feeling like your raise disappeared into your utility bill, you're not wrong. And the data backs it up. Lucas: If walking through the economy with us has helped you understand where your money actually goes, that's exactly why we do this. And the reason these episodes stay ad-free is listener support. If today was useful, you can keep it going at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a simple way to make sure we keep digging into the numbers that matter. Lucas: So back to utilities. One thing I find frustrating is that CPI headlines focus on shelter and food, which are huge components, but utilities get buried. The BLS reports utility data in a subcategory called 'energy services.' It's easy to miss. Luna: And even within that, electricity and gas move differently. Electricity tends to be more stable because it's regulated and generated from a mix of sources. Gas is more volatile. In May, gas jumped sharply. That's going to hit households in colder climates harder. Lucas: Exactly. If you live in the Northeast or Midwest, your heating bill is mostly gas. So a twelve percent increase in natural gas is a direct hit on your raise. In the South, where more homes use electric heat, the hit is smaller but still there. Luna: And there's a seasonal pattern too. Utility inflation tends to accelerate in winter and summer when usage peaks. But the rate increases are often approved in spring and fall. So you get a double whammy: higher rates plus higher usage. Lucas: Right. And that's where the real wage growth we've seen — finally positive after years — can feel like a mirage. The ECI for wages was up in the first quarter, and average hourly earnings are creeping up. But if utility inflation stays in the six to twelve percent range, that's going to eat a disproportionate share. Luna: I think the bigger picture is that utility inflation is structural, not cyclical. The grid needs massive investment. The Energy Information Administration estimates that electricity transmission and distribution spending has doubled over the past decade. Those costs eventually show up on your bill. Lucas: And that investment is essential. We're adding renewable capacity, we're hardening the grid against wildfires and storms. But it means the era of cheap, stable utility bills is probably over. Your raise is going to have to cover higher baseline costs for the foreseeable future. Luna: Which makes it even more important to track wage growth against a broad set of prices, not just headline CPI. If you only look at the top-line number, you might think your raise is solid. But if utilities are rising twice as fast, you're losing ground in that category. Lucas: So what should listeners do? I mean, you can't negotiate your electric rate. But you can check if your utility offers budget billing, where they average your annual usage so your monthly bill is flat. That at least smooths out the spikes. Luna: And weatherization programs, income-based assistance — there are options, but they're not well advertised. The Department of Energy's LIHEAP program helps low-income households. But eligibility varies. Lucas: The bigger takeaway for me is that the raise you get is only as good as the prices it has to cover. And utility prices are becoming a bigger factor in that equation. We'll keep watching this data. If utility inflation moderates later this year, that's a real win for workers. If it stays elevated, we need to talk about why. Luna: And whether wage growth can keep up. Because right now, it's a close race. Lucas: It is. And the margin is thinner than most headlines suggest.