Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Childcare Costs
Transcript
- Lucas: So I want to start with a number that came across my desk this morning. The May CPI report, which hit a couple months ago, showed childcare costs up 5.6 percent year-over-year. That is more than double the headline inflation rate, which is running around 2.4 percent. Luna: And that 5.6 percent is not a blip. Childcare has been running hot for years now. Lucas: Exactly. The Bureau of Labor Statistics index for daycare and preschool has been climbing at a four to six percent annual clip consistently since 2021. And unlike, say, used car prices or lumber, which spiked and then fell back, childcare inflation has been remarkably sticky. Luna: Sticky is the right word. It's a service, not a commodity. And services inflation has been the Fed's real headache. Core PCE, which strips out food and energy, was at 130.1 in May, up from 129.67. Services are the main driver. Lucas: Right. And childcare is a perfect example of why services inflation is so hard to wring out. Let's break down what's actually pushing those costs up, because it's not just one thing. It's a cascade. Luna: Lay it out. I'm genuinely curious because I think a lot of parents just see the bill going up and assume it's greed or something. Lucas: Sure. First big driver: labor. Childcare is incredibly labor-intensive. You need a certain ratio of adults to children by law — in most states it's one teacher for every four infants. That means wages are the biggest line item. And wages in childcare have been rising because the sector simply can't find enough workers. Luna: Especially after the pandemic. A lot of workers left for jobs in retail or fast food that paid the same or more with less stress. Lucas: Exactly. The average childcare worker makes around fifteen dollars an hour nationally. That's not much above minimum wage in many states. So centers are competing with Target and Amazon warehouses, which start at seventeen or eighteen bucks. To keep staff, they raise wages, and that cost gets passed straight to parents. Luna: And that's just labor. What about the other costs? Lucas: Rent is another big one. Daycares need a lot of square footage per child — classrooms, playgrounds, bathrooms, kitchens. Commercial rents have been climbing nationally, especially in suburban areas where most centers are. And property insurance for childcare facilities has gone up too, partly because of higher liability costs and partly because of inflation in construction and repairs. Luna: So the center's insurance premium goes up, the landlord raises the rent, the utility bills are higher — all of that gets folded into the weekly tuition. Lucas: Yes. And there's a less obvious factor: supply is actually shrinking. Between 2020 and 2024, the number of licensed childcare centers in the U.S. dropped by roughly seven percent. Some closed permanently during the pandemic. Others never reopened because the economics just don't work. So you have fewer slots chasing steady or even growing demand. Luna: And demand is definitely growing. Labor force participation for women with children under six hit a record high last year. More two-income families means more need for paid care. Lucas: That's the brutal math: demand up, supply down, costs up. And because childcare is a necessity for working parents, they have very little bargaining power. You can't just decide not to send your kid tomorrow if you have to be at work. Luna: A quick honest thing — a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many of these. If our money conversations have helped you think about a decision differently, that link is in the show notes. Lucas: Yeah, and we keep the show ad-free because of that small group. It's a big help. So back to childcare — one thing that makes this inflation different from, say, gas prices is that it's very local. The national average masks huge variation. Luna: Right. In San Francisco, infant care can run over twenty-five hundred dollars a month. In rural Mississippi, it might be six hundred. But both are going up faster than overall inflation. Lucas: Exactly. And the 5.6 percent CPI figure is an average. Some markets are seeing seven or eight percent increases. The other thing to watch is the policy side. In May 2026, the expanded Child Tax Credit from the 2021 American Rescue Plan is still not reinstated. That credit temporarily cut child poverty nearly in half. Without it, families are feeling the full weight of these costs. Luna: And on the supply side, there's been talk at the state level about increasing subsidy reimbursement rates to providers, but that's slow going. A lot of centers say they can't accept subsidized children because the rates don't cover their costs. Lucas: It's a vicious cycle. Higher costs push more parents to seek subsidies, but the subsidies are too low to attract providers. So more centers go private-pay only, which drives up prices further for families who can afford it, and leaves lower-income families with fewer options. Luna: What about alternatives? In-home care, nanny shares, family child care homes — are those seeing similar inflation? Lucas: Generally, yes. Nanny wages have been rising fast too, because the same labor dynamics apply. A nanny share can be cheaper per family, but you're still paying a competitive wage. And family child care homes — which are often run by one person in their own house — have stricter limits on capacity, so they can't easily scale to meet demand. Luna: So what do you tell a listener who's looking at a six hundred dollar a week daycare bill and wondering if this is ever going to ease up? Lucas: I'd say don't expect a big reversal. Childcare costs are structurally higher now. The best hedge is to lock in a spot early if you can — waitlists are long, and some centers charge a nonrefundable deposit just to get on the list. Also, look into dependent care flexible spending accounts through your employer. That lets you set aside pre-tax dollars, up to five thousand a year, which can save you roughly twenty to thirty percent depending on your tax bracket. Luna: That's a concrete tip. And some states have their own tax credits. California, New York, and a few others offer a state-level child and dependent care credit that's refundable. Lucas: Right. And if you're in a position to choose a center, ask about their staff turnover rate. High turnover often means they're not paying enough, which could lead to instability or even closure. A stable center might cost more upfront but save you the headache of scrambling for care if they shut down. Luna: It's brutal that parents have to think like procurement managers just to get their kids watched. Lucas: Yeah, but that's the reality. And until the policy or labor market shifts significantly, I don't see the trend reversing. The 10-year breakeven inflation rate is sitting at 2.23 percent, which suggests the market expects overall inflation to moderate, but that's an average. Services inflation, especially in labor-intensive sectors like childcare, is likely to stay elevated. Luna: So the takeaway for our listeners: budget for at least five percent annual increases in childcare, look into pre-tax accounts, and if you're planning a family, factor that into your housing and career decisions now. Lucas: Exactly. And if you're already in the thick of it, you're not crazy — the numbers really are that bad. The CPI data backs up what every parent is feeling at the checkout screen. Luna: Alright, next episode we'll tackle another one of those hidden inflation pockets. Thanks for listening. Lucas: Take care.