Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / What Sticky Services Inflation Means for Your Paycheck
Transcript
- Lucas: You look at the headline wage numbers for April 2026 and they actually look pretty decent. Average hourly earnings for private workers hit thirty-seven dollars and forty cents. That's up from thirty-seven thirty-five the month before. So wages are still creeping up. Luna: Right, and the employment cost index — that broader measure of wages and benefits — also ticked up. But the conversation I keep hearing from friends isn't 'my paycheck is growing.' It's 'where did my raise go?' Lucas: Exactly. And the answer, increasingly, isn't grocery prices or gasoline. Those have actually calmed down a bit. The answer is services inflation. And specifically the kind that's really hard to unwind — what economists call 'sticky' services inflation. Luna: Sticky meaning it doesn't drop quickly when demand cools. Like rent, medical care, insurance. Things that are contract-based or regulated or just structurally slow to adjust. Lucas: Bingo. So let's look at the actual CPI data from April. Headline CPI came in at 332.4, up from 330.29 the prior month. That's about a 2.7 percent annualized rate. But core CPI — which strips out food and energy — was even stickier at 335.4, up from 334.17. Luna: So the core is actually running hotter than headline right now. That's unusual for this stage of the cycle, isn't it? Lucas: It is. Usually by now, as the economy normalizes, you'd see core inflation fall faster than headline. The fact that it's not tells you that the remaining inflation is concentrated in categories that are hard to squeeze out. And the biggest culprit? Services. Think auto insurance, rent, medical care. Luna: Auto insurance premiums have been climbing at double-digit rates year over year. I just got my renewal and it was up almost 15 percent. No accident, no ticket. Lucas: That's the story across the board. Repair costs are up, replacement parts are up, and insurers are still catching up from the claims spike during the pandemic. But here's the thing: that's not a one-time adjustment. Insurance premiums are ratcheting up and staying up. Same with rent. The shelter index in CPI is still running around 5 percent annualized. Luna: So your raise might be 4 percent, but if your rent is up 5 and your car insurance is up 12, you're actually going backwards in purchasing power in those categories. Lucas: Exactly. And this is where the disconnect between the macro data and the household experience is most acute. The average hourly earnings number is real. But it's an average. And it doesn't account for the fact that the things you have to buy — housing, insurance, healthcare — are rising faster than the things you want to buy. Luna: So the question becomes: how does the Fed think about this? Because their favorite measure is core PCE, not CPI. And core PCE came in at 129.3 in March, up from 128.9. That's still above their 2 percent target. Lucas: And the ten-year breakeven inflation rate, which is a market-based measure of expected inflation over the next decade, is at 2.40 percent. That's up slightly from 2.39. So the bond market is saying inflation isn't going away anytime soon, but it's not spiraling either. The problem is that 2.4 percent feels a lot higher when your personal inflation rate is 4 or 5 because of the stuff you actually consume. Luna: Right. And that's why consumer sentiment hit a fresh record low this month, despite a strong labor market. The Iran conflict is adding fuel to that fire, but even before that, sticky services inflation was quietly eroding confidence. Lucas: Look at the PCE price index — that's the broadest measure of what consumers actually spend on. It was at 130.3 in March, up from 129.48. So prices are still rising, just more slowly than they were. But the composition shift from goods to services matters. Goods prices can fall. Services prices almost never do. Luna: And that's the key point for listeners. Your paycheck is growing. But if you want to feel that growth, you have to look at what's happening to the specific services you pay for every month. Lucas: If walking through the economy with us has made something click for you — maybe you've started tracking your own personal inflation rate, or you're more aware of what your paycheck is actually up against — a couple of dollars a month is genuinely what keeps these episodes ad-free and independent. Buy me a coffee dot com slash fexingo, if you've gotten something out of them. It makes a real difference. Luna: Yeah, absolutely. Even a small amount really does help keep the lights on here. And it means we don't have to run ads or sell your data. So if that matters to you, that's the place. Lucas: Okay, back to sticky services. One category that often gets overlooked is medical care. The CPI for medical care services has been running about 3 to 4 percent year over year. That's not as dramatic as auto insurance, but it's persistent and it hits everyone. Luna: And health insurance premiums, which are tied to employer plans, are also climbing. That's part of the employment cost index too. So even if your gross wages go up, your net take-home might not reflect it because your share of the premium increased. Lucas: Exactly. And that's a huge part of the 'where did my raise go' story. The Bureau of Labor Statistics data on median usual weekly earnings shows they were up to twelve hundred and four dollars in early 2025, up from eleven fifty-nine. So that's about a 3.9 percent increase. But if your health insurance contribution went up 6 percent, and your rent went up 5, that 3.9 percent raise gets eaten very quickly. Luna: So what's the outlook? Can services inflation cool off in the second half of 2026? Lucas: It's possible, but slow. Rent is starting to moderate in some markets because there's more apartment supply coming online. But auto insurance and medical care are driven by structural factors — repair costs, labor shortages in healthcare, litigation trends — that don't just reverse when the Fed cuts rates. The 10-year breakeven at 2.4 percent suggests the market thinks inflation will settle around there, but the path is going to be bumpy. Luna: And for the typical worker, that means you can't just rely on your raise to keep up. You might need to shop around for insurance, or negotiate your rent, or look at your healthcare plan options more carefully. Lucas: Right. The macro data tells us wages are growing. But the micro reality is that the cost of the things you can't opt out of — housing, insurance, healthcare — is growing faster. And until those sticky services categories cool off, the gap between your paycheck and your purchasing power is going to persist. Luna: So one concrete takeaway: check your personal inflation rate. Add up your rent, insurance, and healthcare costs over the past year. If they're up more than your raise, you know exactly where your money went. Lucas: And that's the kind of clarity that makes the data useful. Thanks for listening — we'll be back tomorrow.