Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Grocery Prices
Transcript
- Lucas: So the core inflation number came out today — 3.4 percent, highest since October 2023. And that headline is grim, but there's actually a bright spot buried in the data that matters more for most households than the overall number. Luna: Let me guess — grocery prices? Lucas: Exactly. The CPI for food at home — that's groceries — rose only 1.8 percent year-over-year in May. Meanwhile, average hourly earnings hit $37.50. That's up 3.7 percent from a year ago. So wages are outpacing grocery inflation by nearly two percentage points. Luna: That's a reversal. For the last couple of years, grocery inflation was running hot, like 6, 8 percent. People felt it every time they checked out. Lucas: Right. And the Bureau of Labor Statistics data shows this isn't just one category. Eggs are down 3 percent from last year. Bread is flat. Dairy is up slightly but way below wage growth. The broad basket is stabilizing. Luna: What's driving the slowdown? Is it demand or supply? Lucas: Mostly supply. Energy costs have come down — the 10-year breakeven inflation is at 2.18 percent, down from 2.21. That flows through to fertilizer, transportation, refrigeration. Plus supply chains that were snarled during the pandemic have mostly unwound. So the cost to get food from farm to shelf is lower. Luna: And wages are still climbing. The employment cost index for wages hit 177.5 in January, up from 176.2. So the gap is real. Lucas: It is. And when you look at median usual weekly earnings — $1,204 in early 2025, up from $1,159 the year before — that's a 3.9 percent increase. So the typical worker is seeing their paycheck grow faster than the cost of their grocery cart. Luna: But there's a nuance. The core CPI ex food and energy is still sticky at 3.4 percent. So services — rent, insurance, medical care — are still running hot. Groceries are the exception, not the rule. Lucas: That's a really important point. This isn't a V-shaped recovery in purchasing power across the board. It's specifically in the grocery aisle. But for most households, groceries are a weekly, unavoidable expense. So even if rent is still painful, having some relief at the supermarket changes the math. Luna: And it changes the sentiment. People anchor to gas and food prices. If those stabilize or fall, they feel better about the economy even if other costs are still high. Lucas: Exactly. And the data backs that up. The PCE price index — the Fed's preferred measure — rose to 131.5 in May, up from 130.9. But the food component is actually pulling the overall number down. If you strip out food and energy, core PCE is 130.1, up from 129.7. Still rising, but slower. Luna: So the question is: is this durable? Or is it a temporary reprieve? Lucas: I think it's partly structural. The supply chain improvements are permanent — companies reshored some production, diversified sourcing. Energy prices are a wildcard, especially with the Strait of Hormuz tensions the headlines are talking about. But even if oil spikes, the grocery supply chain is less energy-intensive than it was five years ago. Luna: And the labor market is still tight. Unemployment is low, so employers have to keep raising wages to attract workers. That's good for the wage side of the equation. Lucas: Right. The factory job cuts we saw in June — near financial crisis levels, according to S&P — that's a warning sign in manufacturing. But the service sector, which employs most grocery workers, is still adding jobs. So the wage growth driver is still there. Luna: So if I'm a typical listener, what should I take away from this? Lucas: That your raise — if you got one in the last year — is finally giving you more breathing room at the grocery store. Not everywhere, but in a category that matters. And if you're tracking your own budget, it's worth looking at your grocery spending as a percentage of income. That ratio is probably improving. Luna: And if you're not tracking it, maybe start. Because that's the kind of data that actually helps you make decisions. Lucas: Yeah. And speaking of decisions — if walking through the economy with us has made something click, if today's episode was worth a coffee to you, that's the link: buy me a coffee dot com slash fexingo. Luna: Honestly, it's the smallest ask. And it keeps the show ad-free. Lucas: Exactly. So back to the grocery story — one more thing I want to flag: the categories where wages are still losing ground. Fresh fruits and vegetables are up 4 percent year-over-year. So if you're trying to eat healthy, that's getting more expensive, not less. Luna: Right, because produce is more sensitive to weather and labor costs. And with the minimum wage increases in some states, that's hitting the fresh aisle. Lucas: Exactly. So the headline is good, but the details matter. If you're buying a lot of packaged goods and eggs, you're winning. If you're buying a lot of fresh produce, you're still feeling the squeeze. Luna: So the advice might be: shift your basket if you can. Buy more frozen vegetables, which are cheaper, and fewer fresh ones. Or look for seasonal produce. Lucas: That's smart. And one more data point: the CPI for food away from home — restaurants — is up 3.5 percent. So eating out is still getting more expensive faster than groceries. That reinforces the incentive to cook at home. Luna: Which, if your wage is up 3.7 percent, means your purchasing power for restaurant meals is roughly flat. But for groceries, it's up. So the trade-off is clear. Lucas: Right. And that's the kind of micro-level insight the headline numbers miss. The average consumer doesn't care about core CPI. They care about what they pay for milk and bread. And for the first time in a while, that's going in the right direction. Luna: Alright, next episode we'll look at another category where the gap is shifting. Thanks, Lucas. Lucas: Thanks, Luna.