Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Tariff Tax on Your Groceries
Transcript
- Lucas: If you’ve been to the supermarket this week, you probably noticed that the sticker shock hasn’t stopped even though headline inflation looks like it’s finally slowing down. The Bureau of Labor Statistics just released the August consumer price index data, and while the overall number is manageable, the core CPI which strips out food and energy is sitting at three hundred thirty seven point eight. Luna: That feels high for a month where everyone was expecting relief, doesn't it? It makes me wonder if the relief we’re seeing in gas prices is just masking something heavier in the aisles. Lucas: Exactly. And here is the specific thing that is going to make your wallet feel lighter than your paycheck suggests: a recent New York Fed analysis has pointed directly at tariffs as the primary driver for inflation on many everyday items. We aren't talking about abstract supply chain bottlenecks anymore; we are talking about explicit taxes on imports hitting the shelf price. Luna: So the government is effectively raising the price tag on goods we buy daily, and then we’re surprised when our buying power drops? Lucas: Precisely. And this creates a weird dissonance because on the labor side, things look decent on paper. Average hourly earnings for private workers were up to thirty seven point eight dollars in September, which is a slight increase from the previous month. But if the cost of your groceries is being propped up by trade policy, those extra cents per hour don't go very far. Luna: It feels like we are running in place. You earn a bit more, but the floor keeps rising because of these tariff costs. Lucas: Right. And the scary part is that this isn't isolated to one category. When tariffs hit intermediate goods or finished consumer products, the effect ripples through. I saw a headline this week noting that Americans' debt problems are flashing a warning not seen since the Great Recession. That CNBC report from October ninth highlights how households are using credit cards just to maintain their standard of living because wages aren't keeping pace with these tariff-inflated prices. Luna: That is a stark comparison to the Great Recession. Are we looking at a broad-based debt crisis or just specific sectors struggling? Lucas: It feels broad-based. The median usual weekly earnings were reported at one thousand two hundred four dollars back in January, but that data is getting stale. If you look at the employment cost index for wages, it ticked up to one hundred seventy nine point zero in April, but that doesn't account for the sudden price shocks we are seeing now. The disconnect between what employers pay and what consumers pay is widening. Luna: It sounds like the productivity gains we usually rely on to absorb wage increases aren't showing up here because the input costs are just higher across the board. Lucas: You hit the nail on the head. In previous episodes, we talked about the productivity wage gap, but this feels different. This is a cost-push inflation event driven by policy decisions rather than market dynamics. When the Federal Reserve surveys one-year inflation outlooks and they hit the highest level since May twenty twenty three, it tells us that consumers are starting to expect prices to keep climbing. Luna: So people are bracing for more price hikes, which might be why they are dipping into credit now instead of waiting for wages to catch up. Lucas: That is exactly what is happening. And while the ten-year breakeven inflation rate dipped slightly to two point thirty three percent last week, that is a market sentiment indicator, not necessarily what you see at the checkout counter. The PCE price index, which the Fed prefers, rose to one hundred thirty one point six in August. It’s a slow burn, but it is persistent. Luna: I’m curious if you think this tariff effect is temporary or if we should adjust our long-term budgeting assuming these prices are the new normal. Lucas: Until the policy changes, you have to assume it is the new normal. And that brings me to a quick honest thing about how this show works. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that is literally what funds making this many of these episodes without ads interrupting your commute. Luna: Yeah, it really helps keep the research deep and the commentary independent, so thank you to anyone who has already joined in. Lucas: Back to the economics. The real question for your household budget is how you allocate fixed versus variable expenses right now. If your rent or mortgage is locked in, the variable costs like food and energy are where the volatility is. You want to lock in those costs wherever possible before the next round of tariff adjustments hits. Luna: That makes sense. It’s less about cutting back and more about protecting the parts of your spending that are most sensitive to these external shocks. Lucas: Exactly. Look at the ICE economic activity reports from earlier this week. They highlighted weakened economies in certain regions, suggesting that the tariff pain isn't evenly distributed. If you live in an area heavily reliant on imported goods or manufacturing, the local price pressure might be higher than the national average. Luna: So the national CPI number of three hundred thirty four point one might actually understate the pain for some households. It’s a localized version of the problem. Lucas: Spot on. And this ties back to the Treasury’s recent moves. With Bessent hiring Judy Shelton as an advisor, there is a lot of speculation about the direction of monetary and fiscal policy. If the administration leans harder into protectionist policies, we could see more of these price shocks. It’s a risk factor you need to weigh against any potential benefits. Luna: It’s hard to balance the political rhetoric with the actual receipt you get at the grocery store. The data doesn't lie, even if the headlines do. Lucas: Right. And remember, the S&P five hundred is up, and the Dow is near fifty one thousand six hundred fifty five, but those are corporate profits, not household incomes. The Russell two thousand is actually down one point four percent over the last five days, which suggests small businesses are feeling the pinch of these input costs much sooner than large caps. Luna: That divergence is important. Small businesses often can't absorb tariff costs the way giants can, so they pass them straight to you. It’s a direct tax on consumption. Lucas: Which brings us back to the debt warning. When small businesses raise prices and wages don't follow, consumers fill the gap with debt. It’s a fragile equilibrium. The core PCE price index at one hundred thirty point five shows that underlying inflation is still sticky. It’s not crashing; it’s just hovering at a level that erodes savings slowly. Luna: So the advice isn't to panic sell or hoard cash, but to be hyper-aware of where your money is leaking due to these policy-driven price hikes. Lucas: Precisely. Audit your subscriptions, your fuel purchases, your grocery staples. Find the areas where you can insulate yourself from short-term volatility. The employment cost index will likely tick up again, but until tariffs are addressed, the purchasing power of that increase will remain capped. Luna: It’s a reminder that macroeconomics isn't just numbers on a chart; it’s the actual decision of whether to buy the premium brand or stick to the generic. Lucas: And that decision is becoming more frequent. As we move through October, watch those grocery bills closely. If the trend continues, we might see a revision in how the government calculates the true cost of living for middle-income families. Luna: I hope they do. Until then, we just have to navigate it as best we can with the data we have. Lucas: Agreed. One concrete thing to take away today is that the gap between wage growth and price growth is being widened by policy, not just market forces. Keep an eye on import data and tariff announcements, as those are the leading indicators for your next shopping trip. Luna: Smart move. Let’s see if the markets react to that reality or if they stay detached from the kitchen table. Lucas: Let’s find out. Thanks for listening, and I’ll see you next time.