Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of Electricity
Transcript
- Lucas: So here's something that might actually surprise you. According to the latest data from the Bureau of Labor Statistics, average hourly earnings in the private sector hit thirty-seven dollars and sixty cents in June. That's up about four point two percent from a year ago. Luna: And the good news is that's ahead of headline inflation. CPI is running at around three point two percent annualized. So real wages are finally positive. Lucas: Right. But what I want to zero in on today is a specific category where that wage growth is actually making a tangible difference for most households. I'm talking about residential electricity prices. Luna: Oh interesting. Because for years, electricity costs seemed to climb no matter what the broader inflation picture was. It felt like a fixed tax on every paycheck. Lucas: Exactly. But the data from the Energy Information Administration shows that the average retail price for residential electricity in May was about fourteen point seven cents per kilowatt-hour. That's up only three point one percent from a year earlier. Luna: So wages grew four point two percent, electricity prices grew three point one percent. That means your paycheck buys more kilowatt-hours than it did a year ago. Lucas: Correct. And when you look at the weekly earnings data — median usual weekly earnings are now over twelve hundred dollars — the average household has about an extra six or seven dollars per week in real terms just from this one category alone. Luna: That's not life-changing for everyone, but for lower-income households who spend a bigger share of their income on utilities, it's real relief. Lucas: And that's exactly the group that's been squeezed hardest over the past few years. If you're listening and thinking 'okay, that's a nice data point but what's behind it?', let's talk about why electricity inflation has cooled. And before we dive deeper, I'll just say — if walking through the economy with us has made something click, or if you appreciate that this show stays ad-free, listeners can support us at buy me a coffee dot com slash fexingo. No pressure, just a simple way to help us keep doing what we do. Luna: Yeah, and we mean it. Every bit helps, and it keeps the conversations focused on the data instead of sponsors. So back to electricity — what's driving the slowdown? Lucas: The biggest factor is natural gas prices. Natural gas is used to generate about thirty-eight percent of U.S. electricity. And the benchmark Henry Hub spot price has been hovering around two dollars and forty cents per million BTU — that's down almost thirty percent from two years ago. Luna: So cheaper fuel means cheaper generation. But there's also been a huge build-out of renewables, right? Lucas: Absolutely. Solar and wind now account for about sixteen percent of total generation, up from twelve percent just three years ago. And once those plants are built, the fuel cost is basically zero. That puts downward pressure on wholesale electricity prices, especially in regions with a lot of renewable capacity. Luna: So the combination of cheap natural gas and growing renewables is really capping price growth. But not every region benefits equally. Lucas: Right. The Northeast and California still have higher transmission and distribution costs, plus some regulatory factors that keep prices elevated. But even there, the rate of increase slowed. For example, in New England, residential prices were up only two point five percent year-over-year in April. Luna: And that's against a backdrop where the overall jobs market is softening. The June payrolls report showed only fifty-seven thousand jobs added, and the unemployment rate ticked up to four point two percent. That's worth noting because if people start losing jobs, wage growth could slow. Lucas: That's the key risk. The labor force participation rate also dropped to its lowest level outside the pandemic era. Fewer people working or looking for work means less upward pressure on wages from tight labor supply. So this window where wage gains outpace electricity prices — it might not last forever. Luna: But for now, the data is clear. The typical worker's raise is finally beating the cost of keeping the lights on. That's a genuine positive in what's otherwise been a tough few years for household budgets. Lucas: It is. And I think it's worth pausing to appreciate that. A lot of the conversation around inflation is rightly focused on the pain points — rent, food, insurance. But this is one category where the trend is actually working in households' favor. Luna: And it's not just electricity. If you look at natural gas utility prices, they've actually fallen over the past year — down about four percent. So the whole energy complex is providing relief right now. Lucas: Yeah, heating costs should be lower this winter if these trends hold. But I want to be careful not to overstate this. The core CPI, excluding food and energy, is still running at about three point one percent. And services inflation is stickier. So this isn't mission accomplished on inflation — it's a specific and welcome reprieve in an essential category. Luna: And the question going forward is whether this can persist. With a cooling labor market, wage growth might moderate. And if natural gas prices rebound or if we have a very hot summer that spikes demand, electricity prices could accelerate again. Lucas: All true. But for the moment, the math is simple: your raise is outpacing your power bill. And that's a sentence we haven't been able to say for most of the last four years. Luna: It kind of feels like a small victory worth noting. A data point to file under 'things are actually getting better.'