Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Your Raise Is Finally Beating Car Insurance Costs
Transcript
- Lucas: If you own a car, you have felt this number in your gut for the last three years. Auto insurance premiums were climbing faster than almost any other regular expense — faster than rent, faster than groceries, faster than your paycheck. But the data we got last month suggests that story has finally flipped. Luna: You're talking about the May CPI print and the June earnings report, right? Lucas: Exactly. So motor vehicle insurance — that's line item in the CPI — rose three point two percent year-over-year in May. That's still an increase, but compare that to the four point nine percent annual gain in average hourly earnings for private workers through June. For the first time since late 2021, wages are outpacing car insurance costs by a meaningful margin. Luna: Meaningful being about one point seven percentage points of headroom. That's not huge, but it's a reversal. Lucas: Right, and it's a reversal that a lot of drivers probably haven't noticed yet because the sticker shock from the last few years is still fresh. Remember, in 2023, auto insurance premiums were up something like twenty percent year-over-year at the peak. So a three percent rise feels tame, but it's the direction that matters. Luna: And we got a listener email about this — Carl from Phoenix, drives for Uber and Lyft. He said his premium dropped eight percent when he renewed last month. He wanted to know if that's a fluke or part of a trend. Lucas: It's part of a trend, but not universal. Phoenix is a good example because Arizona's insurance regulator pushed through some reforms in 2024 that made it easier for drivers to shop around and for new insurers to enter the market. Carl probably benefited from that competition. Nationally, the average is still up three percent, but the range is wide. Luna: So the 'your raise is beating car insurance' headline is true on average, but if you live in a state with less competition or if you have a claims history, you might not feel it yet. Lucas: That's the nuance. And this is why we drill down into specific numbers. The average hourly earnings number — thirty-seven dollars and sixty cents an hour in June — that's a national average. It masks a lot of variation by industry, by region. But for the median full-time worker, the purchasing power gain relative to insurance is real. Luna: Let me check the math. If the average earner makes thirty-seven sixty an hour, that's roughly seventy-eight thousand a year assuming full-time. A three percent insurance increase on a typical annual premium of, say, eighteen hundred dollars is an extra fifty-four bucks. Meanwhile a four point nine percent raise on seventy-eight thousand is about thirty-eight hundred dollars. So the insurance bump is easily absorbed. Lucas: And that's before you shop around. Carl saved eight percent, which on eighteen hundred dollars is a hundred forty-four dollars. So his raise plus the shopping saved him close to four thousand dollars in real spending power relative to insurance costs. That's not nothing. Luna: Honestly, if this episode made you feel a little more in control of your budget, we'd love it if you considered supporting the show. It's listener-supported, ad-free, and the smallest gesture — think the price of a coffee — keeps us going. You can find that at buy me a coffee dot com slash fexingo. Lucas: Yeah, it genuinely helps us keep digging into these specific numbers so you don't have to. And speaking of digging — let's talk about why insurance costs are finally cooling. It's not just one thing. Luna: Give us the short list. Lucas: First, repair costs. Used car prices have stabilized, and the supply chain for parts is back to normal. During the pandemic, a fender bender could cost five thousand dollars because you couldn't get a sensor. Now parts are available, so insurers aren't paying as much per claim. Second, driving patterns have normalized. Post-pandemic, people were driving less, then they drove more aggressively. Now it's more predictable, which helps actuaries price risk. Luna: And third? That's usually where the interesting one lives. Lucas: Third is state-level rate regulation. A bunch of states — Arizona, Texas, Florida, California — have either pushed insurers to justify rate hikes more transparently or made it easier for new insurers to enter. Florida is a mess because of litigation, but others are seeing real competition. That's why you get the Carl story. Luna: So the macro trend is wages winning, but the micro action is shopping around. Lucas: Exactly. The raise gives you the headroom, but switching insurers is how you capture it. And that's the practical takeaway for our listeners: if you haven't shopped your auto insurance in the last twelve months, you are almost certainly overpaying. The data says insurers are competing for low-risk drivers again. Luna: What about the ten-year breakeven inflation rate? It's at two point two six percent, which is basically where the Fed wants it. Does that play into insurance costs? Lucas: Indirectly, yes. A stable inflation outlook means the cost of capital for insurers is more predictable. They don't have to build in a huge buffer for future inflation when setting premiums. That's part of why the three percent year-over-year increase is sustainable rather than a harbinger of another spike. Luna: So the worst of the auto insurance shock is behind us, at least for now. Lucas: That's my read. But I would add one caution: the deductible. A lot of people have been raising their deductibles to keep premiums low. If you have a two-thousand-dollar deductible and you get into an accident, that's a big hit to your savings. The raise helps, but it's not a substitute for an emergency fund. Luna: Good point. The raise wins on the premium side, but the deductible is still a risk. Lucas: And the other thing to watch is the labor force participation rate. That headline from last week — the rate fell to its lowest in fifty years outside of Covid. Fewer people working means fewer commuters, which could reduce claims and push premiums down further. But it also means less wage pressure, so the dynamic could shift. Luna: So the trend is good for now, but it's not guaranteed. Lucas: Nothing in economics is guaranteed. But for the first time in a long time, the worker has the upper hand on this one specific cost. And that's worth pausing on. Luna: Agreed. Next week we'll look at another line item where the raise is finally catching up. Lucas: Thanks for listening.