Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Raises Are Finally Beating the Cost of Eating Out
Transcript
- Lucas: So, Luna, I have a question for you. When was the last time you looked at a restaurant menu and thought, huh, that's actually not as painful as it used to be? Luna: Honestly, maybe last week? I grabbed a burrito bowl and it was, like, eleven dollars, and I remembered when that was a nine-dollar item. But I also got a raise in January, so I wasn't sure if I was just rationalizing. Lucas: That's the exact feeling we're going to dig into today. Because for the longest time, eating out was one of those categories where prices just kept climbing faster than paychecks. But the latest data shows something interesting. As of June, the consumer price index for food away from home was up only 1.8 percent year-over-year. Luna: Wait, 1.8 percent? That's below the overall inflation rate, right? I feel like I've been hearing about menu prices skyrocketing for years. Lucas: Right. And it's not just below overall inflation. It's also below what average hourly earnings are doing. Private-sector average hourly earnings hit 37 dollars and 60 cents in July, up 2.4 percent from a year earlier. So we've got a pretty clear picture: your raise is now outpacing the cost of eating out. Luna: That's a big deal. But I have to ask, is this just a blip? Or is something structural going on? Lucas: Well, let's unpack it. A big part of the story is what's happening with food costs themselves. If you look at the CPI for groceries, or food at home, it's actually been declining. In June, that index was down, I think, 0.6 percent year-over-year. And that feeds into restaurant margins. When the cost of ingredients goes down, restaurants have a little more room to hold the line on menu prices. Luna: So cheaper chicken and avocados eventually mean a cheaper burrito bowl. Lucas: Exactly. But there's also a labor market angle. Restaurants have been dealing with a really tight labor market for a couple of years, which meant they had to raise wages to attract staff, and those costs got passed on to you. Now, with the job market cooling off a bit — you saw that July jobs report, where the economy actually lost 23,000 jobs — wage pressure in the sector is easing. So that's another cost that's not growing as fast. Luna: So restaurants aren't having to hike prices just to cover their own labor costs anymore. That makes sense. But I've also heard that menu prices can be sticky. Like, they don't always come down even when costs do. Lucas: Right, prices are sticky on the way down. But the key here is that they're not falling — they're just rising more slowly. And that's enough. Because when wages are growing at 2.4 percent and menu inflation is 1.8 percent, you're gaining real purchasing power. That's the opposite of what we saw in 2021 and 2022, when restaurant prices were jumping 8 or 9 percent a year. Luna: Okay, so the headline is: your raise is finally beating the cost of eating out. But I want to push on something. Is that true for everyone? Or does it depend on where you live or what kind of restaurant you go to? Lucas: Great question. The CPI numbers are national averages, so there's definitely regional variation. In places like New York or San Francisco, where labor costs are higher, menu inflation might still be running a bit hotter. And fast casual versus fine dining can differ too. But the overall trend is pretty broad-based. Luna: And what about tips? Because when I go out, the price on the menu isn't the price I pay. If I'm tipping 20 percent, or if there's a service fee added, that changes the math. Lucas: That's a really important caveat. The CPI for food away from home — it does include tips, because it's based on what you actually pay at the register. But it might not capture the full effect of those automatic service fees that some restaurants have added. Those fees are probably showing up in the data, but they can be a bit lumpy. Luna: So when I see a 3 percent service fee on my bill, that's part of the 1.8 percent increase? Or could it be hidden? Lucas: The CPI is collected by sending people out to actually purchase meals, so those fees are included in what they pay. But the index might not update as quickly if a restaurant adds a fee mid-month. Still, over the long run, it's captured. So the 1.8 percent is a fair reflection of what the average consumer is paying, tips and fees included. Luna: Okay, that makes me feel a little better. But I think there's a bigger question here. If eating out is becoming more affordable relative to wages, does that mean we're actually going to see people eat out more? Or does that just mean we have a little more money leftover for other things? Lucas: That's the million-dollar question. And it's not just about the price. It's about habits that changed during the pandemic. People got used to cooking at home, and even though prices are stabilizing, the habit might be slow to shift. But I do think there's a pent-up demand for the experience of eating out. And if prices are becoming more reasonable, that might tip some people over the edge. Luna: So maybe we'll see a little boost in restaurant spending in the second half of the year. Lucas: Possibly. But here's the thing — even if people don't go out more, the fact that this category is no longer eating away at their real income is a win. It's one less thing to stress about. And that's worth something. Luna: Absolutely. And you know, this whole conversation reminds me of something you mentioned last week about how a lot of our listeners have been saying they're finally feeling a little relief. If this show has helped you make sense of your own budget, you might want to support us. Lucas: Yeah, we keep this podcast ad-free because of listener support. If today's episode was worth a coffee to you, you can buy us one at buy me a coffee dot com slash fexingo. No pressure, but it does help us keep doing this. Luna: And we appreciate every single one of you who's ever contributed. It genuinely keeps us going. Lucas: Alright, back to the numbers. So we've got wages up 2.4 percent, restaurant prices up 1.8 percent. But I want to zoom out for a second. Is this part of a broader trend where other service categories are also starting to moderate? Luna: Well, we've seen in past episodes that things like car insurance and health insurance are still rising faster than wages. So it's not like everything is suddenly affordable. But services that are heavily dependent on labor — and food away from home is a big one — they might be the first to cool as the labor market softens. Lucas: That's a good way to put it. And it ties into what we're seeing in the broader inflation data. The overall CPI actually dropped in June, to 332.6 from 334. And core inflation, which strips out food and energy, also ticked down. So the trend is our friend here. Luna: So if this continues, we could see real wage growth across the board, not just in eating out. Lucas: Exactly. And that would be a nice change from the past few years. But there are risks. If the job market weakens too much, wage growth could slow, and that would narrow the gap again. So it's a delicate balance. Luna: What would you say to someone who's listening and thinking, okay, but my local restaurant just raised prices. The data doesn't match my experience. Lucas: I'd say, look, the national average is just that — an average. Your neighborhood might be different. But over time, the data smooths out. And the direction is clear: the cost of eating out is not accelerating like it was. So even if your favorite spot raised prices a bit, the pace of those increases is slowing. Luna: And that's probably the most practical takeaway. It's not about any single meal. It's about the trend. So if you're meal planning or budgeting, you can start to assume that your restaurant spending won't eat up as much of your paycheck as it used to. Lucas: Right. And that's a meaningful shift. For the first time in a while, the scales are tipping in favor of the worker. And that's something worth celebrating. Luna: Well, I'm going to go celebrate with a burrito bowl. Maybe I'll even get guac. Lucas: There you go. That's the raise finally doing its job. On that note, we'll leave it here. Thanks for hanging out with us.