Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Gasoline Prices
Transcript
- Lucas: So the average hourly wage for private workers hit thirty-seven fifty in May, up about 2.4 percent year-over-year. That's consistent with what we've been tracking all spring — modest but real gains. Luna: And gasoline prices have been falling. Regular unleaded is down about 7 percent from a year ago, depending on where you live. So the gap is finally opening in the driver's favor. Lucas: Exactly. For the first time since late 2021, your raise is actually beating the cost of filling up the tank. Let me give you the specific numbers. The latest CPI data from May shows gasoline prices down 6.1 percent year-over-year. Meanwhile, average hourly earnings are up 2.4 percent. So on a real basis, the typical worker has about 8.5 percent more gasoline purchasing power than they did twelve months ago. Luna: That's a big swing. I remember last summer when gas was still hovering around four bucks and wages were still playing catch-up. Now it's almost three-fifty nationally. Lucas: Right. The national average as of this week is about three forty-seven a gallon. That's down from three ninety a year ago. But — and this is the part I want to drill into — the national average masks some really stark regional variation. In California, you're still paying over four-fifty. In Hawaii, over four-seventy. Meanwhile, in Texas or Louisiana, you're under three bucks. Luna: So the wage beating gas story is real in Houston but barely a thing in Los Angeles. What's driving the divergence? Lucas: A lot of it is state taxes and refining capacity. California has its own reformulated gasoline requirements and some of the highest excise taxes in the country. Refinery maintenance issues on the West Coast have also kept supply tight. The Gulf Coast refineries are humming, so prices there are lower. But here's the thing — wages in California also grew faster than the national average over the past year, about 3.5 percent. So even if you're paying more at the pump, your raise might still be outpacing gas inflation there. Luna: That's a good point. We should check that. If California wages are up 3.5 percent and gas is down, say, 4 percent year-over-year, then the real gain is even bigger than the national number. Lucas: We don't have the exact state-level wage data for May yet, but the Employment Cost Index for the first quarter showed West Coast wages rising faster than the national average. So the pattern holds. The real pain point is in states like Nevada or Arizona, where wages grew slower — around 2 percent — and gas prices are only down about 3 percent. The net gain is smaller. Luna: So the headline is positive, but the details matter. Let's talk about what this means for the broader inflation picture. The Fed has been watching core inflation — which excludes food and energy — and they've been cautious. Lucas: Right. The core CPI in May was up 2.7 percent year-over-year. That's still above the Fed's 2 percent target, but it's been drifting down. Kevin Warsh, in his first meeting as Fed chair last week, held rates steady and signaled they want to see more progress. Falling gasoline prices actually help core inflation indirectly — they free up consumer spending for other goods and services, which can keep upward pressure on prices in the rest of the economy. Luna: So the Fed might actually view lower gas prices as a mixed signal. It's good for consumers, but it could delay the return to 2 percent if people spend the savings on dining out or travel. Lucas: Exactly. And that's the paradox we keep coming back to on this show. Wage growth that outpaces inflation in one category doesn't automatically translate into lower overall inflation. It shifts where the money flows. But for the individual worker, the improvement in real terms is undeniable. If you drive a typical commute — say fifteen thousand miles a year — and your car gets twenty-five miles per gallon, you're saving about two hundred and fifty dollars a year in fuel costs compared to last year. That's real money. Luna: And that's on top of the wage increase. So the combined effect is that the average worker has a few hundred extra dollars in their pocket this year just from the gas-wage dynamic. Lucas: And that's before we even talk about the fact that many employers are still offering signing bonuses and retention incentives in a tight labor market. The unemployment rate is holding at 3.7 percent. Job openings are still above pre-pandemic levels. Workers have leverage. Luna: But there's a flip side. If you're in a state where gas hasn't fallen as much, or if you're in a low-wage industry where raises have been smaller, you might not feel this at all. Lucas: Absolutely. The bottom quintile of earners — people in retail, hospitality, leisure and hospitality — their wage growth has been stronger than average over the past two years, but it started from a lower base. And they're more likely to spend a larger share of their income on gasoline. So even though their wages are up 4 or 5 percent, the real benefit from lower gas prices is crucial for them. It's not just a nice bonus — it's relief. Luna: You know, it reminds me of something we discussed a few episodes ago about how wage growth is finally beating rent in smaller cities. The pattern is the same: the national numbers are good, but the local experience varies wildly. If you're in a city where both rent and gas have fallen, you're in a sweet spot. Lucas: Right. And the sweetest spot right now might be the Sun Belt — Texas, Florida, parts of the Southeast — where wages have been rising at 3 percent or more, rent growth has moderated, and gas is cheap. Meanwhile, in the Northeast and West Coast, you're still paying a premium for housing and fuel, even if wage growth is a bit higher. Luna: So if a listener wants to check their own situation, what should they look at? Their own wage growth over the past year, the local gas price trend, and their state's inflation rate for other big expenses like rent. Lucas: Yeah. And we've got a handy tool on our website — it's the wage vs price calculator that we built. Actually, speaking of which, if you find these episodes useful and want to support the show, you can at buy me a coffee dot com slash fexingo. That's 'buy me a coffee dot com slash fexingo'. It helps us keep the show ad-free and independent. And we really appreciate it. Luna: Yeah, it does. And it's a simple way to help if you get value from what we do. Alright, back to the data. I want to look at the breakeven inflation rate — the ten-year breakeven is at 2.25 percent, which is down slightly from earlier this year. Lucas: That's the market's expectation for average inflation over the next decade. It's been hovering around 2.2 to 2.3 percent for months now. That tells you that bond traders think the Fed is going to succeed in bringing inflation down, but not much below 2 percent. And wage growth at 2.4 percent, with productivity growing around 1.5 percent, is actually consistent with that. It's not too hot. Luna: So the wage-price spiral that everyone was worried about in 2022 — it never materialized. And now we're in this Goldilocks zone where wages are growing enough to keep up with inflation but not so fast that they're fueling it. Lucas: Exactly. And the fact that gasoline prices are falling is a big part of that story. If oil prices had spiked due to the Iran tensions — and they did spike briefly in April — we could be having a different conversation. But the relief at the pump has been a tailwind for the whole disinflation process. Luna: Let's check the latest on oil. West Texas Intermediate is around seventy-eight dollars a barrel today. That's down from the mid-eighties in April. So the geopolitical premium has faded. Lucas: And the Biden administration has been releasing strategic reserves and encouraging domestic production. U.S. crude output is at record levels above thirteen million barrels a day. So supply is ample. The wildcard is demand — if the economy slows more than expected, oil could drop further, pushing gas below three dollars nationally. Luna: That would be huge for consumers. But it would also signal a recession, which would hurt wage growth. So there's a trade-off. Lucas: Always a trade-off. But for now, the data says your raise is finally beating gasoline prices. And that's a win worth noting, even if it's uneven across the country. Luna: And even if it might not last forever. But we'll take it while we can. Lucas: Next week, we'll look at another category where the wage-inflation gap is shifting. Maybe airfares. They've been volatile. Luna: Airfares are a good one. Until then, keep an eye on your local gas station and your paycheck.