Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Wage Growth Feels Like It Is Disappearing
Transcript
- Lucas: If walking through the economy with us has made something click about your own finances, I want to be transparent about how we keep this show running. We don’t run ads, and a small group of listeners chipping in monthly at buy me a coffee dot com slash fexingo literally funds making these episodes possible. Luna: It’s just the community keeping the lights on, which means we can actually dig into the stuff that matters without worrying about sponsor constraints. Lucas: Exactly. And speaking of what matters, let’s look at the data sitting on my desk for today, September twenty-first, two thousand twenty-six. We have a fascinating contradiction in front of us. Average hourly earnings for private workers hit thirty-seven dollars and eighty cents recently, up from thirty-seven dollars and sixty-five cents in August. On paper, wages are moving. Luna: But if you look at the consumer price index, which ticked up to three hundred thirty-four point one, it feels like those raises are vanishing into thin air before they even hit your bank account. Lucas: Right, and that is the crux of the issue. It isn’t just about groceries anymore. We covered the grocery receipt feeling heavier in previous episodes, but now the squeeze is structural across services. The employment cost index for wages rose to one hundred seventy-nine in the second quarter, signaling that labor costs are climbing faster than many businesses expected. Luna: So you’re saying the wage gain is real, but the inflation target has shifted away from goods toward services where prices stickier? Lucas: Precisely. Core CPI, which excludes food and energy, is at three hundred thirty-seven point eight. That is stubbornly high. When you look at the PCE price index at one hundred thirty-one point seven, you see that underlying inflation is still running above the Federal Reserve’s comfort zone. The problem is that wage growth is barely outpacing this core inflation rate. Luna: It’s a zero-sum game for the average worker. You get a four percent raise, but your essential services go up four percent, so your actual lifestyle doesn’t improve. Lucas: That’s exactly it. Let’s drill into a specific sector to make this concrete. Healthcare. The Bureau of Labor Statistics has flagged healthcare wage pressures as a primary driver of the Employment Cost Index increase. Hospitals and care facilities are competing for staff in a tight labor market, driving up their operational costs significantly. Luna: And those costs get passed directly to consumers through insurance premiums and out-of-pocket expenses, which erodes any wage gain you might have gotten from a job promotion. Lucas: Yes. Consider this: if your hourly wage rises by one dollar and fifty cents, but your healthcare costs rise by two dollars due to provider pricing strategies, you are effectively poorer. The median usual weekly earnings are at one thousand two hundred four dollars, but that number doesn’t reflect the deductibles or premium hikes hitting middle-income households. Luna: It’s invisible erosion. You feel richer because the paycheck is bigger, but your net worth trajectory is flatlining. Lucas: And this ties into the recent headlines about consumer sentiment being in the dumps. Goldman Sachs recently noted that lower happiness levels are correlating with this economic reality. People know the macro numbers are okay, but their micro experience is stressful. Luna: Because when you’re paying more for care, more for transport, and more for subscriptions, the extra ten dollars in your paycheck feels negligible rather than liberating. Lucas: Let’s talk about transportation for a moment. There were alarms sounded recently by transport companies regarding fuel prices and operational costs. If you drive for work, or even if you commute, those fixed costs are eating into disposable income. The ten-year breakeven inflation rate is at two point thirty-four percent, meaning markets expect inflation to stay elevated. Luna: So you’re trapped. You can’t stop paying for health, you can’t stop commuting, and your wage hike is just covering the base rate of survival. Lucas: Exactly. And here is the tricky part for policymakers. The Fed sees the unemployment rate holding steady, so they aren’t panicked about a recession. But they also see that wage growth isn’t cooling fast enough to bring core CPI down to two percent without causing significant pain in the labor market. Luna: It’s a policy bind. Cut rates too early and inflation spikes again, but hold them high and workers’ purchasing power keeps getting siphoned off by sticky service prices. Lucas: Let’s look at the S&P five hundred, which is up two point four percent over the last five days. The stock market is rallying, driven largely by tech and growth stocks. But for the average worker not heavily invested in equities, this rally provides no cushion against the rising cost of living. Luna: It highlights the disconnect between asset holders and wage earners. The rich get richer from the market bump, while the rest of us deal with the healthcare and service bill increases. Lucas: This brings us to the concept of 'real wages.' Nominal wages are going up, but real wages—adjusted for inflation—are essentially flat. When you take the thirty-seven dollar and eighty cents hourly rate and adjust it for the core CPI of three hundred thirty-seven point eight, the purchasing power gain is minimal. Luna: So the advice shouldn’t be 'get a raise,' it should be 'manage the gap.' Because the gap is closing slower than the costs are rising. Lucas: Right. And businesses are feeling the pinch too. If they raise wages to attract talent, they must raise prices. If they raise prices, workers need more money. It’s a wage-price spiral that hasn’t quite exploded, but it’s simmering under the surface of the service sector. Luna: Which makes negotiating hard. How do you negotiate a raise when your employer is already squeezed by their own input costs? Lucas: You focus on value creation, not just tenure. In a sector like healthcare or specialized logistics, where labor shortages are acute, employees who demonstrate unique efficiency or leadership can command premiums. But for generic roles, the bargaining power is limited. Luna: So diversification becomes key. Side hustles, skill upgrades, anything that adds an income stream outside the standard wage ladder. Lucas: Or simply accepting that the era of easy purchasing power growth is over for now. We are in a period of consolidation. The big jumps in wages during the post-pandemic rebound are stabilizing, and inflation is proving resilient. Luna: It changes how you budget. You can’t plan on next year’s raise covering all the bases. You have to plan for static real income. Lucas: Let’s circle back to the data. The VIX, the volatility index, is calm. Markets are stable. But stability for investors doesn’t mean stability for your wallet. The divergence between financial assets and consumer prices is the defining feature of late two thousand twenty-six. Luna: It’s a reminder that macroeconomic success doesn’t automatically translate to microeconomic comfort. The system works, but the distribution of gains is uneven. Lucas: Agreed. And looking ahead, if the Bank of England defies the Fed’s lead and keeps rates unchanged, it could further complicate global capital flows, potentially strengthening the dollar or weakening it depending on trade balances. But for you, the local reality remains the same. Luna: Your rent, your food, your medical bills. Those are the numbers that dictate your quality of life, not the S&P five hundred. Lucas: Which is why we need to keep tracking the Employment Cost Index closely. It’s a leading indicator. If wages start to cool relative to productivity, then maybe the squeeze will ease. But right now, productivity isn’t growing fast enough to absorb these labor costs. Luna: So we watch, we adjust our expectations, and we protect our purchasing power however we can. Lucas: Exactly. The goal isn’t to panic about the data, but to understand the mechanics so you can make better decisions about savings, spending, and career moves. Luna: It’s about clarity. Knowing that your paycheck isn’t failing you, but that the economic environment is specifically designed to test your resilience. Lucas: And resilience in two thousand twenty-six looks different than it did in two thousand twenty-three. It requires a sharper eye on the fine print of your contracts and your benefits packages. Luna: Thanks for helping us see the pattern behind the noise. Next time you get that raise notice, you’ll know exactly where to check for the leaks. Lucas: We’ll leave you with that thought. As you navigate your September, ask yourself: is my income growing faster than my essential costs? If the answer is no, it might be time to rethink your strategy.