Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Wage Price Squeeze Is Moving Into Your Car
Transcript
- Lucas: Look, if you’ve been checking your bank account lately, it probably feels like the economy is doing one thing while your wallet is doing another. We spent a lot of time talking about groceries and rent in previous episodes, but today I want to focus on where the next big hit to your purchasing power is hiding. It’s not in the food aisle anymore. It’s in the garage. Luna: You mean vehicle ownership? That seems like a weird place to look for a macro trend, unless you’re specifically tracking fleet management costs. Lucas: Not just fleets, Luna. Everyday commuters. The data from early September shows that while headline inflation is cooling, the underlying costs associated with keeping a car running are accelerating. We’re seeing the Employment Cost Index rise to 179.0, which tells us labor is getting more expensive across the board. And who provides that labor? Mechanics, insurance adjusters, roadside assistance, and ride-share drivers. Luna: Right, so the service component of owning a car is inflating even if the hardware costs have stabilized. But is this really a crisis, or just people buying older cars they can’t afford? Lucas: It’s both, and that’s the trap. Let’s look at the numbers. Core CPI, which strips out volatile food and energy, is sitting at 337.8. That sounds stable, but when you dig into the components, transportation services are bleeding. Average hourly earnings for private workers ticked up slightly to 37.80, but that barely covers the premium hikes in auto insurance and the rising cost of parts due to supply chain frictions. Luna: So you’re saying the gap between wage growth and the actual cost of mobility is widening. That’s a very specific kind of squeeze. Lucas: Exactly. And here is the concrete thing most people miss: it’s not just about buying a car. It’s about the recurring costs. Insurance premiums have surged because repair costs are up. Labor rates for independent shops are up because of that 179.0 Employment Cost Index. You are paying more every month just to keep your existing asset functional. Luna: But wait, didn’t we see some relief in used car prices earlier this year? Isn’t that balancing out the repair costs? Lucas: Used car prices have softened, yes, but they haven’t crashed back to pre-pandemic levels. Meanwhile, the cost of maintaining those used cars is skyrocketing. If you drive an older vehicle, you are effectively paying a 'aging tax' in labor hours that simply didn’t exist ten years ago. The median usual weekly earnings are at 1,204.00, but if your transport costs go up by two hundred dollars, that’s nearly twenty percent of your take-home pay vanishing before you even get to discretionary spending. Luna: That is a massive chunk of liquidity. And I’m hearing from listeners who say they’re delaying maintenance because they can’t justify the expense, which just makes the problem worse later. Lucas: Precisely. Deferring maintenance is a financial illusion. You’re trading immediate cash flow preservation for higher future risk. And given that consumer sentiment is currently in the dumps despite a solid economy, people are feeling this pinch acutely. Goldman Sachs is noting lower happiness levels, and I’d bet a significant portion of that anxiety comes from the realization that your income isn’t stretching as far in the service sectors. Luna: It’s interesting that the headlines are all about central banks and interest rates, but the real story for the average household is the price of a brake job or an oil change. Lucas: Because those are sticky costs. They don’t fluctuate daily like stock prices. Once a shop sets its labor rate based on the current Employment Cost Index, it stays there. And with the PCE price index at 131.7, the broader measure of consumption is still telling us that services are the engine of current inflation, not goods. Luna: So if you’re trying to budget for the rest of 2026, you need to stop looking at the sticker price of a new car and start looking at the total cost of ownership spreadsheet. Lucas: Yes. And specifically, you need to factor in insurance. The Iran war headlines are keeping oil prices elevated, which affects logistics costs, but the direct impact on you is through insurance claims and repair delays. Transport companies are sounding alarms on fuel prices, which trickles down to everything delivered by road, including the parts you need for your car. Luna: It feels like the whole ecosystem is getting more expensive. Even if you don’t own a car, the cost of rideshare or public transit subsidies might be rising. Lucas: That’s a good point. Transit agencies rely on fares and government subsidies. If labor costs for transit operators go up, fares go up or service frequency goes down. Either way, your commute gets harder. This is the invisible tax on your monthly routine that no one talks about in the FOMC meetings. Luna: I think we should pause here for a moment to talk about how we keep this content going. If walking through the economy with us has made something click... Lucas: Yeah, it’s easy to forget that this deep dive into the numbers doesn’t happen automatically. These conversations stay ad-free because listeners choose to support them directly. If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Luna: It really helps us keep digging into the data instead of just skimming the surface. Thanks for being part of that. Lucas: Let’s get back to the garage. Because there’s another layer to this that’s even more subtle. It’s about the shift in how people perceive value in durable goods. Luna: What do you mean by that? Are people buying cheaper cars now? Lucas: They are, but not because they prefer them. They are buying them because the financing environment is tough. With the 10-year Treasury yields hovering around current levels, auto loan rates remain stubbornly high. So people are extending the life of their current vehicles further than ever before. And as I said, extending the life means extending the exposure to rising service costs. Luna: So the longer you keep a car, the more likely you are to encounter major repairs during a period of peak labor inflation. That’s a dangerous combination. Lucas: It is. And it creates a perverse incentive structure. You might delay buying a new car to save on the purchase price, but you end up spending more on maintenance over five years than you would have if you bought a new, efficient car three years ago. It’s a loss-aversion trap. Luna: Loss aversion. That’s a classic behavioral economics concept applied to household budgets. People fear the large upfront cost of a new car more than they fear the slow bleed of monthly repair bills. Lucas: Exactly. And the data supports this. Look at the median usual weekly earnings again. 1,204.00. That number hasn’t moved dramatically, but the variance in housing and transport costs has. When you combine stagnant wage growth with volatile service inflation, you get this feeling of being stuck. Luna: Which brings us back to the consumer sentiment dip. People aren’t just unhappy with politics; they’re unhappy with their personal economic reality. And that reality is increasingly defined by fixed, rising obligations like insurance and fuel. Lucas: Right. And unlike a subscription you can cancel, you can’t really cancel your car if you live outside a dense urban center. For many Americans, the car is non-negotiable. That lack of elasticity makes these price hikes particularly painful. Luna: So what’s the practical takeaway for someone listening right now? Should they try to sell their car and switch to public transit? Lucas: Only if it makes sense for your geography. But practically, you should audit your current insurance policy. Shop around aggressively. Also, consider the total cost of ownership before you make any major purchase decisions. Don’t just look at the monthly payment. Look at the projected maintenance schedule for the next three years. Luna: And maybe build a dedicated sinking fund for vehicle repairs, separate from your general savings. Treat it like a utility bill rather than an optional expense. Lucas: That’s smart. Because in 2026, vehicle maintenance is becoming a utility. It’s a baseline cost of participation in the economy, much like electricity or internet access. And those baseline costs are rising faster than wages. Luna: It’s a stark reminder that inflation isn’t a monolith. It’s a collection of different pressures hitting different parts of our lives at different speeds. Lucas: Absolutely. We tend to think of inflation as a single number, like the CPI. But your life is made of thousands of micro-transactions. When the service side of those transactions gets pricier, your quality of life drops even if the headline number looks calm. Luna: Do you think the Federal Reserve will respond to this service-led inflation, or are they too focused on the goods side? Lucas: They are watching it closely. The PCE price index includes services, so it’s in their model. But monetary policy works with a lag. By the time they react to service inflation, it might already be baked into contracts and pricing expectations. That’s why forward guidance is so critical right now. Luna: So we’re in a waiting game. Watching to see if wages finally catch up to these service costs, or if employers start cutting back on hours to manage the payroll burden. Lucas: That’s the next big risk. If labor costs continue to rise without a corresponding increase in productivity, we could see a slowdown in hiring, especially in the small businesses that run our local repair shops and service centers. Luna: A ripple effect from the garage to the main street. It’s a complex web, isn’t it? Lucas: It is. And that’s why understanding the specific mechanics of your own budget is more important than ever. You can’t control the Employment Cost Index, but you can control how you prepare for it. Luna: Agreed. Keep your eyes on the long tail of costs, not just the sticker price of the shiny new thing. Lucas: Well said. As we head into the last quarter of 2026, the question isn’t just whether you got a raise. It’s whether that raise survived the trip from your paycheck to your garage. Luna: Here’s hoping yours did. But if it didn’t, you know where to find us.