Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Wholesale Price Shock in October 2026
Transcript
- Lucas: If you have been looking at the headlines this week, there is one number that stands out more than the others. Wholesale prices jumped six point three percent annually in September, marking the biggest gain we have seen since twenty twenty-two. Luna: That feels huge for a post-pandemic world. Is that mostly just energy volatility, or are we seeing something deeper in the goods? Lucas: It is broader than that. The core wholesale index, which strips out food and energy, is also ticking up. We are seeing pressure in industrial materials and intermediate goods, which usually means manufacturers are paying more before they even get to the retail shelf. Luna: So if factories are paying more now, retailers are going to try to pass that on to us pretty quickly. Lucas: Exactly. And the timing is tricky because we are right here in mid-October twenty twenty-six. The CPI for all urban consumers sat at three hundred thirty six point three last month, but this PPI reading suggests that might not be the final word on consumer prices yet. Luna: Right, because there is always a lag between wholesale costs and what hits the checkout counter. Lucas: Precisely. Think about it like a pipeline. When the water pressure changes upstream, it takes time for those fluctuations to reach the tap in your kitchen. But once the price hike hits, it sticks. Luna: It makes me wonder if this is just a blip from some supply chain hiccup, or if it is a sign that inflation has found a new floor. Lucas: I am leaning toward the latter. Look at the ten-year breakeven inflation rate, which is sitting at two point three five percent today. That is up from two point three two percent just recently. Markets are pricing in slightly higher long-term inflation expectations. Luna: That is subtle but significant. It means investors aren't fully convinced the Fed can tame prices completely without pain. Lucas: Correct. And consider the Employment Cost Index for wages, which was at one hundred seventy nine point zero earlier this year. If labor costs stay elevated while wholesale input costs are jumping, businesses face a squeeze on both sides. Luna: Do they just raise prices then? Because that creates a wage-price spiral risk. Lucas: They do, but they are hesitant. Margins are already thin. However, with the U.S. budget deficit swelling to almost two trillion dollars for fiscal twenty twenty-six, the macro backdrop is definitely inflationary. Luna: A two trillion dollar deficit is massive. How does government borrowing interact with these private sector price hikes? Lucas: It increases the demand for credit. When the Treasury is borrowing heavily, it competes with private borrowers for capital. This keeps interest rates structurally higher, which supports the dollar but also makes importing goods more expensive if global supply chains tighten further. Luna: So we are dealing with fiscal policy and monetary policy colliding at the same time. Lucas: That is a fair way to put it. Kevin Warsh mentioned recently that everyone expects the Fed to hold rates in October, but given this PPI surprise, the margin for error is razor-thin. Luna: I bet the FOMC members are staring at this six point three percent jump and wondering if they need to signal hawkishness again. Lucas: They probably are. But remember, the S&P five hundred is down nearly two percent over the last five days. Investors are nervous about earnings if input costs keep rising without corresponding revenue growth. Luna: It feels like we are back in the old playbook of fighting inflation, but with different variables than twenty twenty-three. Lucas: Different indeed. In twenty twenty-three, it was largely services and housing. Now, it is moving back into goods and manufacturing inputs. That is a weird reversal. Luna: Yeah, I never thought I would say 'goods inflation' again so soon after thinking we beat it. Lucas: Well, let's pause for a moment to talk about how we keep this show running. Luna: We deliberately don't run ads on these shows. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Lucas: It helps us dig into data like this without worrying about sponsor deliverables. Thanks for listening. Luna: Anyway, getting back to the wholesale numbers, do you think retailers have already baked this six point three percent increase into their holiday forecasts? Lucas: Some have. You can see it in the guidance from major retailers who are warning about margin compression. They are trying to absorb some of it, but eventually, the consumer pays. Luna: So if I go shopping next month, my basket is likely to reflect these current wholesale spikes. Lucas: Most likely. Especially in categories where inventory turnover is fast. If you are buying fresh goods or tech accessories, those prices move quicker than furniture or appliances. Luna: That explains why the grocery bill feels sticky even when gas prices stabilize. Lucas: Exactly. Gas is volatile, but processed foods and household essentials are driven by these intermediate costs. And with the PPI showing such strong annual gains, that stickiness could last well into the fourth quarter. Luna: It makes the Fed's job incredibly difficult. They can't cut rates if wholesale prices are accelerating like this. Lucas: Right. Cutting now would look like they are ignoring the data. Holding steady is the only logical move until we see if this trend reverses in November. Luna: But what if it doesn't reverse? What if this becomes the new normal for cost structures? Lucas: Then we have to adjust our expectations for real wage growth. If prices go up six percent, but your paycheck only goes up four percent, you are effectively poorer. Luna: That is the scary part. The median usual weekly earnings were at one thousand two hundred four dollars, but that hasn't caught up to these latest input costs. Lucas: Precisely. There is a gap opening up between nominal income and real purchasing power. It is why people feel poorer even when they get a raise. Luna: It shifts the focus from just 'getting a raise' to 'managing the gap'. Lucas: Yes. Budgeting for inflation becomes less about cutting coupons and more about understanding where the underlying costs are moving. Luna: Are there any sectors that might actually benefit from this wholesale inflation? Lucas: Commodity producers, obviously. If oil and metals are driving the PPI up, those companies see revenue spikes. But for the average worker, it is mostly headwind. Luna: So it is a transfer of wealth from the consumer to the resource owner. Lucas: In many ways, yes. And it highlights why diversification matters in your own portfolio during these cycles. Luna: I suppose that means watching the PPI report closely every month is a good habit now. Lucas: Absolutely. It is an early warning system for the consumer economy. If you ignore it, you might be surprised by the sticker shock in December. Luna: Good advice. I will start keeping an eye on those wholesale numbers instead of just waiting for the monthly CPI print. Lucas: Do that. And if you are curious about how this impacts your specific industry, check our archive for previous deep dives on supply chains. Luna: Thanks for listening. We will see you next time.