Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Real Cost of Utilities
Transcript
- Lucas: I want to start with a number that doesn't get much airtime in the inflation conversation: the CPI for utilities. In May 2026, that index stood at 334.0 — same as the overall CPI — but here's the interesting part. Over the past twelve months, utility prices rose only 2.1 percent, while average hourly earnings for private workers rose 3.8 percent, from $36.09 to $37.50. Luna: So wages are beating utility inflation by nearly two full percentage points. That hasn't been true for most of the past three years. Lucas: Exactly. And I think this is one of those quiet victories that doesn't make headlines. For a typical household, utility bills — electricity, natural gas, water — are a non-negotiable chunk of the monthly budget. When those costs were surging in 2022 and 2023, it hurt in a way that felt relentless. Now the dynamic has flipped. Luna: Let's unpack that flip. Why did utility prices spike so hard in the first place, and why are they now growing so slowly? Lucas: A lot of it comes down to wholesale energy markets. In 2022, natural gas prices spiked after the Russian invasion of Ukraine, and since gas-fired power plants generate about 40 percent of U.S. electricity, that fed straight into residential electric rates. By mid-2023, natural gas had come down from its peak, but utility companies are slow to pass through those declines — they adjust rates through regulatory proceedings that can take six to twelve months. Luna: Right, so the lag worked against consumers on the way up, and now it's working for them on the way down. But the data we have from BLS — the May 2026 numbers — show utility inflation is actually below the overall CPI. That's a pretty clear sign the pass-through has happened. Lucas: It has. And the effect on purchasing power is real. If we take the median usual weekly earnings figure — that's $1,204 as of early 2025 — and adjust it for utility costs specifically, the real purchasing power for that line item is at its highest since 2021. You can buy more kilowatt-hours and more therms of natural gas with an hour of work than you could two years ago. Luna: I want to make sure we're not overgeneralizing, though. Utility costs vary hugely by region. Someone in New England paying for heating oil or natural gas in the winter has a very different experience from someone in the Pacific Northwest who relies on hydroelectric power. Lucas: Absolutely. And within utilities, water and sewer rates have been rising faster than electricity — often 4 to 6 percent annually because of aging infrastructure. So the wage beat may not be uniform across every utility subcategory. But on the whole, the trend is encouraging. Luna: And this is where I think the show is a good example of why listener support matters. We dig into numbers like these every day, and that takes time and access to data sources. A small number of listeners help make that possible through buy me a coffee dot com slash fexingo. It's a way to keep this ad-free and focused on the economics that actually affect people's budgets. Lucas: Yeah, it's straightforward — no tiers, no perks, just a way to support the work if you find it useful. And it genuinely helps us keep going. Back to utilities — one other factor I want to highlight is the ten-year breakeven inflation rate, which is sitting at 2.23 percent as of yesterday. That's the market's expectation for average inflation over the next decade, and it's very close to the Fed's target. If utilities continue to run below that, that's a real tailwind for household budgets. Luna: So the bond market is essentially saying inflation is under control, and utilities are one pillar of that. But does that mean the average worker feels better off? Because even if wages are beating utilities, other categories like rent or health insurance are still eating up a lot of income. Lucas: That's a fair point. In prior episodes we've covered how wages are finally outpacing rent in smaller markets, and health insurance premiums are growing more slowly. But the overall picture is still mixed. The Employment Cost Index for wages — that's a broader measure including benefits — was at 177.5 in early 2026, up about 3.2 percent year over year. That's decent, but not spectacular. The real victory here is that utilities have moved from being a headwind to a tailwind. For a family that was seeing $300 electric bills in the summer of 2023, a $250 bill this July — adjusted for wage growth — is a meaningful relief. Luna: And that relief is showing up in consumer sentiment data. The University of Michigan survey has ticked up in recent months. It's still below pre-pandemic levels, but the improvement in real purchasing power — even in just one category — seems to be registering. Lucas: That's the kind of granular story we try to tell here. It's not about declaring victory over inflation broadly. It's about one specific line item that finally looks less daunting. If you're a listener who's noticed your utility bills aren't as scary as they were two years ago, the data backs that up. And if you haven't, it might be worth checking your rate — some utilities have actually decreased their per-unit charges in the past year. Luna: I think that's a good place to leave it. Next episode, we'll look at another category where wages might finally be gaining ground. Lucas? Lucas: We'll dig into transportation costs beyond just gasoline — things like public transit fares and airline tickets. See you then.