Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of a Haircut
Transcript
- Lucas: So Luna, I got a haircut yesterday, and for the first time in years, I didn't feel like I was getting squeezed. My barber charged me the same as he did in 2023, and I just got a raise in June. That got me thinking—are haircuts actually one of the few things that are getting cheaper relative to our paychecks? Luna: That's interesting. I mean, my salon just raised prices by five dollars, but I assumed that was just inflation everywhere. Are you telling me that's not the norm? Lucas: Well, the data suggests that the cost of a haircut has been rising, but not as fast as average hourly earnings. Look at the latest numbers: average hourly earnings for private workers hit 37 dollars and 60 cents in June, up from 37.51. Meanwhile, the overall CPI actually dipped to 332.6, down from 333.98 in May. So the average raise is outpacing the cost of living, and personal care services like haircuts are a big part of that. Luna: So we're finally beating the cost of a haircut. But why? What's keeping barbershop prices down while everything else seems to go up? Lucas: There are a few things going on. First, there's productivity. Barbers and stylists have gotten faster with better tools and techniques, so they can serve more clients per hour without raising prices. Second, the gig economy has flooded the market with freelance stylists and mobile barbers. That's increased competition and put a lid on price hikes. And third, consumer behavior has shifted—people are being more price-sensitive and seeking out cheaper options, which forces salons to hold the line. Luna: I hadn't thought about the gig economy angle. So there's a supply glut of people who can cut hair, and that's keeping prices down. But doesn't that also hurt the full-time barbers who have to compete with that? Lucas: It's a trade-off. The gig model offers flexibility, but it also means less job security and benefits. That's a broader story about the labor market, but for the consumer, it's a win. And it's not just haircuts. We've seen similar trends in other personal services, like pet care and even some home repairs, where on-demand platforms have increased supply. Luna: Okay, so raise beats haircut. But does that mean the Fed is going to be happy? I mean, core inflation is still running at 3.3 percent, and there's pressure on the Fed to act. How does this play into that? Lucas: Well, the fact that services like haircuts are not accelerating is actually a good sign for the Fed. It suggests that the wage-price spiral isn't taking hold. If wages grow faster than prices, that's a sign of real purchasing power gains, and it might give the Fed room to hold off on further rate hikes. But it's not uniform—there are still pockets of inflation, like in manufacturing, where a survey shows inflation worries are 'worse than pandemic era.' So the Fed is in a tricky spot, but this is one encouraging data point. Luna: That makes sense. But I'm curious—how much has the average haircut actually gone up? Can you put some numbers on it? Lucas: Sure. Since 2020, the cost of personal care services has risen by about 18 percent over five years. That's roughly 3.4 percent per year. But average hourly earnings have grown about 6 percent per year over the same period. So the gap is real. For someone making the median weekly earnings of 1,204 dollars, a forty-dollar haircut is now about 3.3 percent of their weekly paycheck, down from 3.8 percent in 2020. Luna: So a haircut is becoming a smaller slice of your budget. That's a tangible win. But is this sustainable? Or are we just in a temporary sweet spot? Lucas: That's the million-dollar question. The gig economy might not keep expanding forever. And if consumer demand picks up sharply, barbers could regain pricing power. But for now, the structural changes—like more efficient tools and a larger labor pool—suggest this could last for a while. Plus, the 10-year breakeven inflation rate is at 2.27 percent, which is down from 2.28, so the market expects inflation to stay moderate. That bodes well for your haircut budget. Luna: It's nice to have a win. But I also wonder—what about the barbers themselves? Are they seeing their wages grow as fast as the prices they charge? Lucas: That's a crucial point. The employment cost index for wages rose to 179 in April, up from 177.5. So overall wage growth is solid. But for barbers specifically, it's a mixed bag. Many are self-employed, so they're not captured in those numbers. And if they're competing with gig workers, their bargaining power might be limited. So while consumers benefit, the workers themselves might not be seeing the same gains. Luna: So this is good for your wallet, but maybe not great for the person holding the clippers. That's a tricky balance. Lucas: Exactly. And it ties into a broader theme we've been exploring on the show: the wage-price race isn't monolithic. Some things are finally getting more affordable, but that doesn't mean everyone is sharing in the prosperity equally. It really depends on which side of the service you're on. Luna: Right. And speaking of that, I've been thinking about how this connects to the Fed’s dilemma. If services inflation is cooling, that might ease some pressure. But with core inflation still at 3.3 percent, they can’t just ignore it. Lucas: No, and that’s why the Fed is divided. There’s a headline about that this week—what a divided Fed means for investors. Some officials are worried about the manufacturing inflation survey, which is really bad, but others are pointing to the cooling CPI and PCE. The June PCE price index actually fell slightly to 131.4 from 131.53, so there are disinflationary signals. The question is whether that’s enough to delay further rate hikes. Luna: So a haircut might be a canary in the coal mine for services inflation. If that stays tame, maybe the Fed can take a breath. Lucas: That’s a great way to put it. And it’s the kind of specific data point that tells you more than a headline. A haircut is a service that’s heavily influenced by local labor markets and competition. If that's stable, it’s a good sign for broader services inflation. Luna: So, what should our listener take away from this? Besides the fact that they might save a few bucks on their next trim? Lucas: The big takeaway is that the wage-price race isn’t a simple story. Some costs are finally falling behind, and that’s meaningful for your purchasing power. But it’s uneven. So it pays to know what’s accelerating and what’s not. And for the Fed, the devil is in the details—one service category isn’t going to move the needle, but a broad trend of services disinflation would. Luna: I’m glad we uncovered this. It’s a nice counterpoint to all the doom and gloom about inflation. And it’s something people can check themselves—ask your barber what they charge now versus two years ago, and compare it to your own raise. Lucas: Absolutely. And if walking through the economy with us has made something click for you, whether it’s understanding your own paycheck or why a haircut costs what it does, you might want to support the show. We love doing this, but we’re independent and ad-free, and listener support is what keeps it that way. If you’re so inclined, you can buy us a coffee at buy me a coffee dot com slash fexingo. Luna: Yeah, and it goes a long way. We appreciate every bit. Lucas: So, back to that haircut. I’m curious—do you think this trend will hold, or is it just a blip? I’d bet on it holding, given the structural factors. But I’ve been wrong before. Luna: I think you’re right to bet on it, but I also think we need to watch the manufacturing survey. That could be a warning sign that price pressures are lurking in the pipeline. Lucas: Good point. And that’s the thing about economics—nothing moves in a straight line. But for now, if you’re due for a trim, you can go in with a little more confidence that your raise is finally covering it. Luna: I’ll toast to that with a coffee. And maybe I’ll book that appointment. Lucas: And that’s where we’ll leave it. Thanks for joining us on Wages and Prices. We’ll see you next time.