Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Apparel Prices
Transcript
- Lucas: Let me start with a number that surprised me when I pulled it this morning. The CPI apparel index has fallen two point three percent year-over-year as of May 2026. Luna: Wait — clothing is actually getting cheaper? That feels like it's been a decade since we could say that about anything. Lucas: That's exactly why I wanted to talk about it. We've spent weeks on the show talking about wages finally beating rent, beating healthcare, beating car insurance. But apparel might be the clearest win yet. Luna: Because the wage numbers have been creeping up too. Average hourly earnings hit thirty-seven fifty last month. Lucas: Right. So you've got wages rising about four point two percent year-over-year, and apparel prices dropping more than two percent. That means real purchasing power for clothing is up roughly six and a half percent in twelve months. Luna: That's a huge swing. When was the last time that happened? Lucas: You have to go back to the early 2000s — around 2003, 2004 — when China really started flooding the market with low-cost textiles. But back then wages were growing slower, so the real gain wasn't as dramatic. Luna: So what's driving it now? Same China story, or something different? Lucas: It's a mix. The China factor is still there — apparel import prices from China are down about four percent over the past year. But you've also got Shein and Temu compressing the fast-fashion model even further. Their algorithms are basically producing micro-batches based on real-time demand, so they're not sitting on excess inventory that they have to mark down. Luna: So they're not flooding the market with leftovers, but they're still keeping prices low. Lucas: Exactly. They're efficient in a way traditional retailers aren't. Gap and H&M have been losing market share because they can't match the speed or the price point. Luna: I've also noticed that my local department stores have deeper clearance sections than they did two years ago. Is that part of it? Lucas: It is. Traditional retailers over-ordered during the post-pandemic demand surge, and they've been working through that inventory since late 2023. Even now, in mid-2026, some of that overhang is still getting liquidated. Luna: So that's pushing down prices on the mid-tier and discount end too. Lucas: Right. And here's the detail that matters most for the listener: if you're a typical worker earning the median weekly wage of twelve hundred and four dollars, your clothing budget is actually shrinking as a share of your income. The Bureau of Labor Statistics consumer expenditure survey shows the average household spent about one thousand eight hundred dollars on apparel in 2024. At current price trends, that number is probably closer to seventeen-fifty for 2025 — and even lower this year. Luna: That's real money back in people's pockets. Not huge relative to rent or healthcare, but it adds up. Lucas: It's also psychologically important. When people see that some prices are actually falling, it can shift their perception of inflation. The headline CPI is still running around three percent, but if you break it down, there are categories like apparel, electronics, and used cars that are pulling the other way. Luna: And speaking of things that add up — you know, we do this show without any advertising or corporate backing. A couple of dollars a month is genuinely what keeps these episodes coming. If walking through the economy with us has made something click, buy me a coffee dot com slash fexingo helps keep it ad-free. Lucas: It really does. And we don't run ads, so that's the whole model — listeners who find value here chipping in a little. Appreciate anyone who does. Luna: Alright, back to apparel. We've talked about why prices are falling. But is this a durable trend? Lucas: I think there are two risks. One is trade policy. If the current administration escalates tariffs on Chinese goods — and there's been talk of that again — apparel prices would reverse quickly. About 40 percent of US apparel imports come from China. Luna: So that's a big lever. Even a 10 percent tariff would erase most of the deflation we've seen. Lucas: Exactly. The second risk is labor costs. Fast-fashion brands like Shein are facing increasing scrutiny over factory conditions and wages in China. If those costs rise, the low-price model gets squeezed. Luna: But for now, the consumer is winning. I looked at the core PCE data from April — it's up two point six percent year-over-year, still above the Fed's target. But with apparel falling, it's actually pulling the core down a bit. Lucas: That's a good point. The core PCE price index is at 129.6, and apparel has a weight of about 3.5 percent in that index. So a two percent drop in apparel subtracts about seven basis points from core inflation. Not huge, but it helps. Luna: And in a world where the Fed is trying to get inflation down to two percent, every little bit counts. Lucas: Especially with the new Fed chair Kevin Warsh signaling a cautious approach after last week's FOMC meeting. He held rates steady at 5.25 percent, and the market sees the first cut possibly in September. Falling apparel prices give them a bit more room to wait. Luna: So what should a listener do with this information? Any practical takeaway? Lucas: I think two things. First, if you've been holding off on buying clothes because prices felt high, now is actually a good time — especially for basics and off-season items. Second, keep an eye on trade headlines. If tariffs go up, you'll want to buy before they hit. Luna: And maybe don't assume this deflation lasts forever. It's a window. Lucas: Exactly. So enjoy the window while it's open. Next episode, we'll look at another category where wages are finally gaining ground — and one where they're not. Thanks for listening.