Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Energy Inflation Is Stealing Your Paycheck
Transcript
- Lucas: So you get a raise — let's say it's around 4.5 percent, which is roughly what the average private-sector worker saw over the past year. Hourly earnings hit $37.40 in April. Feels good on paper. Luna: Right — until you fill up your gas tank or pay your electric bill. Suddenly that raise shrinks. Lucas: Exactly. And that's the puzzle we're looking at today. Because headline CPI is at 332.4, up from 330.3 a month earlier. But the real story is energy. The Iran conflict has pushed up oil prices, and the average household is now paying about $450 more per year on gas and energy. That's a direct tax on your paycheck. Luna: And the Fed's preferred inflation gauge — core PCE, which excludes food and energy — came in at an annual rate of 3.3 percent in April. So by that measure, inflation is cooling. But if you're a household, energy is a huge part of your budget. Lucas: That's the key disconnect. Core PCE is the Fed's compass — it tells them underlying inflation trends. And right now, it's still above their 2 percent target. But it's energy that's actually pinching consumers. And energy is volatile — it can spike because of geopolitics, not because of demand overheating. So the Fed is in a tough spot. Luna: Fed's Goolsbee was on CNBC last week saying energy inflation has been more persistent than expected. And Kashkari said inflation fight takes priority, even though the labor market is 'in decent shape.' Lucas: Which means rate cuts are likely off the table for now. And that's a problem for workers, because their raises — real as they are — get eaten by both higher energy costs and still-high borrowing costs. Mortgage rates, car loans, credit cards. So the $37.40 an hour doesn't go as far as it would have two years ago. Luna: Let's look at the numbers. Median usual weekly earnings were $1,204 in early 2025. That's up from $1,159 a year before. So about 3.9 percent growth. But CPI over that same period ran at about 3.5 to 4 percent. So real wages are barely positive. Lucas: And when you subtract that $450 energy tax — call it about $8.65 a week — real weekly earnings growth goes from maybe $45 to $36. That's a 20 percent haircut on your raise just from energy. And that's before we talk about rent, which is still sticky in many markets. Luna: So the headline — 'wages are outpacing inflation' — is technically true for many workers. But the lived experience is different because energy is such a visible, unavoidable cost. You see the price at the pump every week. Lucas: And that feeds into consumer sentiment, which hit a record low earlier this year — partly because of the Iran war shock. Even though the labor market is strong, people feel squeezed. And that's a real economic signal. If consumers pull back, that could slow the economy more than the Fed wants. Luna: So what's the path forward? Energy prices are hard to predict — they depend on the conflict. But if they stay elevated, we could see a longer period where wage growth feels invisible. Lucas: I think the key for listeners is to understand that official inflation numbers — especially core PCE — don't capture your personal experience. If you spend a larger share of your income on gas and heating, your personal inflation rate is higher than the national average. And that's worth factoring into your own budget planning. Luna: It's also a reminder that the Fed's job isn't just about a number. They have to balance inflation against the real-world pain of higher energy costs. And right now, they're leaning on fighting inflation, even if that means keeping rates higher. Lucas: And if you're someone who feels like your raise just disappears into everyday costs — you're not imagining it. The data backs that up. But it's not uniform. Some sectors, like healthcare and hospitality, are seeing faster wage growth. Others, like retail, are lagging. Luna: And that's where we can dig deeper in future episodes — which jobs are actually keeping up? Lucas: For today, the takeaway is this: energy inflation is the hidden tax on your paycheck. And until that eases — either through lower oil prices or higher wage growth — the disconnect between the macro data and your wallet will persist. Luna: You know, it's funny — walking through the economy like this, it really does make things click. The numbers start to tell a story. And if that story has helped you, there's a simple way to support the show and keep it ad-free. Lucas: Yeah, listeners like you are what make this possible. If you want to help us keep breaking down these topics without any sponsor interruptions, you can buy us a coffee at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure, just an option if you find value in what we do. Luna: And it really helps us keep going. Now, back to the economics — one thing we haven't touched on is what happens if oil prices fall. Could we see a sudden boost in real wages? Lucas: That's a great point. If the Iran situation de-escalates, oil prices could drop sharply. And because energy is such a large component of CPI, headline inflation would fall quickly. That would make wage gains feel much more real, almost overnight. But it's a big if. Luna: So the wildcard is geopolitics. And that's something the Fed can't control. They can only react. Lucas: Exactly. And that's why, for now, the best advice is to watch your own personal inflation rate. Track what you actually spend on energy, food, rent. If those are rising faster than your paycheck, you know the reality. And that's more useful than any headline number. Luna: Good place to leave it. Next time, we'll look at which occupations are actually seeing real wage gains in this environment. Lucas: Sounds like a plan. Thanks for listening, and we'll catch you next time.