Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Stays Invisible When Inflation Is Sticky
Transcript
- Lucas: There's this strange disconnect right now that I keep circling back to. Wages are up — median weekly earnings hit $1,204 last year, about a 3.9 percent increase from the year before. Luna: And yet everyone I talk to still feels squeezed. Like the raise never quite lands. Lucas: Exactly. And the latest data explains why. Core inflation — the Fed's preferred gauge, the core PCE price index — came in at 3.3 percent annualized for April. That was released today, actually. Luna: So wages are growing at 3.9 percent, but prices are growing at 3.3. That's a positive spread. Shouldn't people feel that? Lucas: In the aggregate, yes. But the problem is that your average worker doesn't spend their money on the aggregate CPI basket. They spend it on rent, on health insurance, on car repairs, on tuition. And those categories are inflating faster than the headline number. Luna: Right — the stickiest stuff. Services inflation has been stubborn for over a year now. Lucas: Let's look at shelter costs. Rent of primary residence in the CPI is still running above 4.5 percent year-over-year. That alone eats up a huge chunk of any raise for anyone renting. Luna: And if you own a home, it's not much better — property taxes and insurance have been climbing fast. Lucas: Then there's medical care. The services component of medical inflation is hovering around 3.8 percent. So that raise you got? It's getting allocated before you even see it — to higher premiums, higher copays. Luna: That's the part that feels invisible. Your gross pay goes up, but your net purchasing power in the categories you can't avoid stays flat. Lucas: And it's made worse by the fact that we've been trained to look at headline inflation. When the Fed says 'inflation is cooling,' people hear 'prices are falling.' But that's not what's happening. Prices are still rising — just more slowly. Luna: Which means your raise is still losing ground in the places that matter most. Lucas: Here's a specific example. Let's say you're a median earner — about $62,000 a year based on that weekly number. A 3.9 percent raise gives you about $2,400 more gross. But if your rent goes up 5 percent on a $1,500 monthly payment, that's $900 gone. If your health insurance premium goes up 6 percent — and employer-sponsored premiums rose about 7 percent last year — that's another few hundred bucks. Suddenly your raise is mostly spoken for before you spend a dime on discretionary stuff. Luna: And that's assuming you're at the median. For lower-income workers, the share of spending on these essentials is even higher. Lucas: Exactly. This is why consumer sentiment is still depressed despite a strong labor market. The University of Michigan survey, the Conference Board — they're all showing that people feel bad about the economy. And it's not irrational. It's a reflection of this structural mismatch. Luna: So what's the Fed doing about it? We heard Kashkari today saying inflation fight takes priority. And Goolsbee noted energy inflation has been persistent. Lucas: Right. The Fed's posture is still cautious. They want to see sustained evidence that services inflation is coming down before they cut rates. The problem is that services inflation is driven by things that are slow to change — rent, wages in labor-intensive sectors, insurance cycles. Luna: So we're stuck in this waiting pattern. Wages are rising, but the things that eat your raise are rising too. Lucas: And there's a time lag. When rent inflation finally slows in the official data, it will be months after the market has already adjusted. So the lived experience is always behind the data. Luna: That's the frustrating part for workers. You hear 'inflation is down' but your rent renewal letter says otherwise. Lucas: One thing that could shift the dynamic is if productivity growth stays strong. If companies can raise wages without raising prices, that's the golden scenario. But we're not there yet. Luna: Speaking of things that don't quite add up — Lucas, you and I spend a lot of time digging into this data, and we try to make it make sense for listeners. And I know a lot of people get real value out of these episodes. Lucas: Yeah, and I'm glad you brought that up, because this show is entirely ad-free, and that's only possible because some listeners choose to chip in. It's not a big thing — a couple of dollars a month genuinely makes a difference in keeping the lights on. Luna: If you've ever gotten something out of an episode, or if it helped you explain something at dinner, buy me a coffee dot com slash fexingo is where you can do that. No pressure, no upsell. Lucas: And it really does help. We're grateful for those who do. Anyway — back to that productivity point. There are some early signs that AI and automation are starting to show up in productivity numbers, especially in professional services. Luna: But that's a longer-term story. For the next few months, the story is 'your raise is real, but it's being silently absorbed by sticky costs.' Lucas: Right. And I think the takeaway for listeners is: don't gaslight yourself into thinking you're bad with money just because your paycheck doesn't seem to go further. The math actually supports what you're feeling. Luna: So the question becomes — when does that math change? When do we actually start feeling the wage gains? Lucas: Probably not until shelter inflation drops below 3 percent, which most forecasters don't expect until late 2026 or early 2027. And even then, it'll take a quarter or two to show up in people's real experience. Luna: So patience is the word. Which is not what anyone wants to hear. Lucas: No, it's not. But understanding the mechanism is at least better than feeling crazy. That's the whole point of this show. Luna: Agreed. Thanks for sticking with us through the numbers.