Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Growing Faster Than Rent for the First Time
Transcript
- Lucas: If you've been watching your paycheck and your rent statement for the last few years, you know the usual pattern — your raise shows up, and then the landlord's increase shows up right behind it. But the April 2026 data actually flipped that script for the first time in a while. Luna: Wait — you're saying wages are finally pulling ahead of rent? Because that hasn't been the story for most of this decade. Lucas: That's exactly what the numbers show. Average hourly earnings for private workers hit thirty-seven dollars and forty cents in April, up from thirty-seven thirty-five the month before. Meanwhile, the rent component of CPI — which is the broadest measure — rose at its slowest annual pace in three years. So the gap between what you earn and what you pay for housing is actually narrowing. Luna: I want to believe that. But there's always a 'but' in this economy. What's the catch? Lucas: The catch is energy. The Iran war has pushed gas and heating costs up sharply — the average household is paying about four hundred fifty dollars more per year on energy, according to one estimate. So even if your rent is growing slower, that energy cost is quietly siphoning off the raise before you feel it. Luna: So rent relief is real, but the wallet doesn't feel it because the pump and the utility bill are taking it back. Lucas: Exactly. And that's the kind of nuance that gets lost in the headline numbers — core inflation at 3.3 percent, job openings surging to 7.6 million, the S&P 500 near 7,600. All of that is true, but the lived experience depends on which costs are moving fastest for you. Luna: Look, I know we talk a lot on this show about the mechanics behind these numbers, and that's only possible because listeners keep this show ad-free. A handful of folks chip in monthly through buy me a coffee dot com slash fexingo, and that's literally what funds making this many episodes. So if walking through the economy with us has made something click, that's the button. Lucas: Yeah, and we mean that — it's a small group that keeps the lights on, and we appreciate it every time someone joins. But back to the rent story. Let me give you the actual numbers on that gap. Lucas: So over the past year, average hourly earnings have grown about 4.1 percent. Rent inflation, on the other hand, has slowed to around 3.4 percent. That's a positive spread of roughly 0.7 percentage points. In 2023 and most of 2024, that spread was negative — rent was rising faster than pay. Luna: Right, I remember episodes where we were looking at rent eating up 30 percent of income or more. So the direction is good. But is this just a temporary blip? Lucas: That's the million-dollar question. The slowdown in rent is partly because of a wave of new apartment supply coming online, especially in Sun Belt cities. Multifamily construction starts were high in 2023 and 2024, and those units are now hitting the market, which puts downward pressure on rents. But that supply wave will fade by late 2027. So the window for rent relief might be narrow. Luna: And on the wage side, the job market is still hot — 7.6 million job openings in April, the highest in nearly two years. That should keep pushing wages up, right? Lucas: It should. But there's a complication. A lot of those openings are in lower-paying sectors like leisure and hospitality, which pulls the average down. And the tight labor market is also putting pressure on employers to raise prices to cover higher labor costs. That's the classic wage-price spiral risk, though the Fed is watching it closely. Luna: So we've got this nice crossover where rent slows and wages grow, but energy is the spoiler. How much of that $450 energy cost is actually eating the raise? Lucas: Let's do the math. The average raise for a worker earning the median weekly wage of about $1,204 — that's roughly $62,600 a year — a 4 percent raise gives you about $2,500 extra annually. The $450 energy hit is about 18 percent of that raise. So you feel it, but it's not wiping out the whole thing. The rent relief, if it holds, could more than offset that. Luna: That's actually more optimistic than I expected. So the net picture for the typical worker is still positive — just not as positive as the wage number alone suggests. Lucas: Correct. And the key variable is whether energy prices stay elevated. The Iran war has created a risk premium on oil, and if that escalates, the $450 figure could go higher. But if it stabilizes, the wage-rent dynamic becomes the dominant story. Luna: And what about the PCE data? Core PCE came in at 3.3 percent annualized in April — that's still above the Fed's 2 percent target. Does that change anything for workers? Lucas: It means the Fed isn't cutting rates soon. That keeps mortgage rates high, which makes buying a home expensive and keeps rental demand elevated. So rent relief from new supply is welcome, but it's happening in a high-rate environment that's still squeezing affordability on the ownership side. Luna: So the renter is getting a bit of a break, but the would-be homebuyer is still stuck. That's a split screen. Lucas: Exactly. And that's why you can have a market where stocks are hitting records — the S&P 500 above 7,600 — while a lot of households feel like they're running in place. The macro numbers are good, but the micro experience depends on your specific cost basket. Luna: So what's the one thing you'd tell a listener to watch in the next few months to know if this trend holds? Lucas: Watch the rent component of CPI each month. If it stays below 3.5 percent year-over-year, and wage growth stays above 4 percent, then the spread is real and durable. Also keep an eye on oil prices — if they drop back below $70 a barrel, that $450 energy tax shrinks fast. But if they spike above $100, then everything changes. Luna: So a cautious optimism — but with a clear trigger to watch. Sounds like a plan. Lucas: Exactly. And as always, we'll be here to walk through the data as it comes in.