Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Higher Wages Are Changing the Way We Buy Insurance
Transcript
- Lucas: You get a raise — let's say four and a half percent, which is roughly what the average private-sector worker got over the past year. Feels good on paper. But then you open your mailbox and your auto insurance premium is up twelve percent. Your health insurance deductible just jumped. And suddenly that raise doesn't feel like a raise. Luna: Right. The headline number looks fine — wages are growing faster than CPI — but the stuff you actually have to buy is moving at a different speed. Lucas: Exactly. CPI came in at three hundred thirty-two point four in April, up about two and a half percent year over year. Core CPI, which strips out food and energy, is at three hundred thirty-five point four — that's only about one point three percent annualized. So by those measures, real wage growth is positive for the first time in a while. Luna: Yeah, we talked about that in episode thirty-four — the moment real wages finally turned positive. But listeners might be feeling a disconnect. If wages are beating inflation, why does the budget still feel tight? Lucas: Because insurance is one of those categories that's running way hotter than the average. And it's not just health insurance — though that's a big one. Auto insurance premiums nationally are up something like fifteen to twenty percent over the last two years. Homeowners insurance in states like Florida, California, Louisiana — we're talking thirty to forty percent increases in some cases. Luna: And those aren't discretionary. You can't just decide not to have car insurance if you drive. You can't drop health insurance if you have a chronic condition. So these costs eat into your raise before you even get to spending on things you actually enjoy. Lucas: The New York Fed put out a survey this week — household worries about finances hit the highest level since July 2022. And I think a big part of that is exactly this: the costs you can't control are rising faster than the ones you can. Gas prices are down year over year. Food inflation is moderating. But insurance? It's a silent budget killer. Luna: Let's talk about why. What's driving insurance costs up so much? Lucas: A few things. Health insurance is partly about medical inflation — hospital costs, prescription drugs, the consolidation of healthcare systems. But there's also a post-pandemic utilization spike. People deferred care in 2020 and 2021, and now they're catching up. Insurers had to raise premiums to cover that. Luna: And for auto and home? Lucas: Climate risk is a huge factor. Insurers are repricing based on actual climate data — wildfires, hurricanes, floods. In California, some of the biggest insurers pulled out of the homeowners market entirely. The ones that stayed are charging a lot more. Also, car repair costs have gone up — cars are more complex, parts are more expensive, labor costs more. So even if you haven't had an accident, your premium goes up because the risk pool is more expensive. Luna: So the raise you got — maybe four and a half percent — is being partially offset by an insurance increase that's two or three times that. That's a real squeeze. Lucas: And here's the thing: most people don't think of insurance as a line item they can negotiate. But you actually can shop around. The difference between the cheapest and most expensive auto insurer for the same driver can be hundreds of dollars a year. Same with homeowners. It's a pain, but it's one of the few levers you have. Luna: That's a good practical takeaway. But I want to go back to something you mentioned — the fact that this is all happening while the economy is supposedly in good shape. Unemployment is low, wages are up. Yet the New York Fed survey says people are more worried than they've been in almost four years. Lucas: Yeah. And that's the puzzle that keeps economists up at night. You can have positive aggregate data and still have a lot of households feeling squeezed. The average masks distribution. If you're a renter in a high-cost city with a long commute and you drive an older car, your insurance and rent might be eating up a huge share of your income — even if your wage went up. Luna: And that's where listener support comes in — because we don't have ads, we rely on people who find this kind of analysis useful to chip in. A handful of listeners already do, through buy me a coffee dot com slash fexingo, and that literally funds making these episodes. If walking through the economy with us has made something click, that's the way to keep it going. Lucas: Yeah, it's a small thing that adds up. And it keeps the show independent. So — back to insurance. One other angle I want to hit: employer-sponsored health insurance. When your employer pays part of your premium, you might not see the full increase. But it still affects your total compensation. Luna: Right. Because if your employer's health insurance costs go up, that's money that could have gone to your raise. So even if you got a four and a half percent wage increase, your total compensation package might have only grown by three percent because the employer's share of premiums rose. Lucas: Exactly. The Employment Cost Index, which tracks total compensation including benefits, showed wages rising but benefits costs accelerating. That's a hidden tax on your raise. Luna: So what's the outlook? With the May CPI report coming out Wednesday, do we expect any relief on the insurance front? Lucas: Probably not in the near term. Insurance pricing is sticky — it changes slowly. And with climate risks and healthcare costs still trending up, I'd expect premiums to keep rising faster than overall inflation for at least another year or two. The good news is that wage growth might stay strong enough to absorb some of it. But the key is to be aware of it. If you know insurance is eating more of your paycheck, you can adjust — shop around, consider a higher deductible, look for bundling discounts. Luna: Bottom line: your raise is real, but it's not a free pass. The line items that are hardest to cut are the ones growing fastest. Keep an eye on them. Lucas: And if you want us to keep digging into these hidden costs, you know where to find us. We'll be back tomorrow with another angle on wages and prices.