Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of Car Insurance
Transcript
- Lucas: Luna, I was looking at the June jobs report — average hourly earnings hit $37.60, up about 2.4% annualized over the last three months. Meanwhile the headline CPI actually fell slightly from the previous month. So on average, wages are finally outpacing inflation. Luna: Right, that's the big picture. But when you drill into specific categories — like car insurance — the story gets a little messier. Lucas: Exactly. The latest CPI data shows motor vehicle insurance prices were still up about 8% year-over-year in June. But that's down from double-digit increases we saw in 2024 and 2025. So the gap between wage growth and insurance inflation is closing. Luna: So the trend is moving in the right direction, but it hasn't crossed over yet for car insurance? Lucas: Not quite. Average hourly earnings grew about 3.8% over the past twelve months through June. Car insurance rose 8% in the same period. So you're still losing ground there. But the rate of increase has slowed significantly — from 12% last year to 8% now. If that trend continues, we could see wage growth overtake insurance costs within a year. Luna: That's a pretty specific timeline. What's driving the slowdown in insurance premiums? Lucas: A few things. First, used car prices have stabilized after the pandemic spike — that reduces the cost of replacing a vehicle in an accident. Second, the frequency of accidents has normalized post-pandemic as people return to commuting patterns. And third, some states have pushed back on rate hikes. All of that has helped moderate premium increases. Luna: And that kind of breakdown is exactly why we do this show — to make the numbers tangible. Lucas: Yeah, it's helpful to see not just the headline, but why your own insurance bill might not match the average. If you find this useful, the way we keep it ad-free is through listener support. You can buy me a coffee dot com slash fexingo to help us keep going. Now, let's talk about what this means for your purchasing power. Luna: Absolutely. So even if the overall CPI is down, car insurance is still eating into real wage gains. Lucas: Right. Let's look at the numbers more closely. Average hourly earnings in June were $37.60. Over the past year, that's a 3.8% increase. But if your car insurance went up 8%, you're effectively losing about 4% of that raise to just one expense. And that's if you're a single-car household. Luna: And for multi-car families, the hit is even larger. I've seen some listeners saying their premiums went up 15% this year. Lucas: Yeah, the variation is huge. Some states like California and New York have seen higher increases due to litigation costs and weather-related claims. But the national average is moderating. The key takeaway is that wage growth is finally catching up to the inflation that matters most to people. Luna: But catching up doesn't mean caught up. How long until we see real wage gains across the board? Lucas: That depends on two things: how fast wages grow and how fast insurance costs moderate. If wage growth stays around 3.5% and insurance inflation drops to 5% over the next year, then by mid-2027 we'd see car insurance no longer drag on real earnings. That's plausible given the trends. Luna: What about other categories? Rent, health care, education — aren't those still high? Lucas: They are, but the pattern is similar. Rent growth has slowed from 8% to about 5% year-over-year. Medical care services are around 3%. So the overall inflation picture is improving. Car insurance just happens to be one of the last holdouts. Luna: Right, because it's tied to repair costs, which are still elevated due to supply chain issues. Lucas: Exactly. The price of auto parts has come down, but not as fast as hoped. And labor rates at repair shops are still rising. So there's a lag. But the direction is clear. Luna: Let's talk about the broader economy. With wages beating headline CPI, does that change the Fed's calculus? Lucas: It should, but the Fed focuses on core PCE, which is still running about 2.6%. That's above their 2% target. And with import prices up — especially from China hitting the highest since 2008 — there's a risk that inflation could reaccelerate. So the Fed is likely to stay cautious. Luna: Even if wage growth is moderate? Lucas: Especially if wage growth is moderate. The Fed doesn't want to see a wage-price spiral, but that's not happening. Productivity gains have been solid, so unit labor costs aren't soaring. The bigger worry is tariffs. The new global tariff and the planned drug tariffs could push import costs up again. Luna: So the risk is that car insurance might have been falling, but if parts get more expensive due to tariffs, that could reverse. Lucas: Bingo. That's the wild card. Many auto parts are imported, and if tariffs expand, repair costs could jump. That would keep insurance premiums elevated. So the timeline we talked about could be pushed out. Luna: What can listeners do to protect themselves? Shop around for insurance? Drive less? Lucas: Shopping around is the number one advice. Insurers use different risk models, so you can often save 20-30% by switching. Also, consider raising your deductible if you have an emergency fund. And some telematics programs can lower rates for safe driving. But that's micro-level. The macro story is that wage growth is finally gaining traction against the cost of living. Luna: And the data supports that. Average hourly earnings have been trending up, and the employment cost index for wages rose to 177.5 in the first quarter of 2026. Lucas: Right, that's a 0.7% quarter-over-quarter increase. Companies are still competing for workers, especially in leisure, hospitality, and healthcare. That's pushing wages up. Luna: So the bottom line: your raise is finally beating the cost of car insurance — but only if you look at the trend, not the level. Lucas: Exactly. We're not there yet, but the gap is closing. And that's a better story than we had a year ago. Luna: For sure. And we'll be watching the CPI report next month to see if the trend continues. Lucas: Absolutely. That's it for today. Thanks for listening. Luna: See you next time.