Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / The Wage-Price Squeeze That Isn't About Rent
Transcript
- Lucas: Look, if you’re checking your bank account right now, September eighth, 2026, and wondering why that raise you got six months ago doesn’t feel like it covers much more than it did last winter, you’re not crazy. It’s not just psychology. We have actual numbers to prove the squeeze is real, even if headlines keep telling us inflation is tamed. Luna: Right, because the headline inflation rate has cooled, so everyone assumes wallets are expanding again. But when I look at my own monthly budget, the fixed costs just don’t move down. Lucas: Exactly. And that’s the trap we need to talk about today. Most people are comparing their current paycheck to the peak inflation days of 2022 or 2023. But the real battle isn’t against the high water mark; it’s against the sticky, stubborn floor that services have established since then. Let’s look at the Employment Cost Index for wages. As of April first, it hit one hundred seventy-nine point zero. That’s up from one hundred seventy-seven point five. So employers are still paying more to keep staff. But here is the kicker: that wage growth isn’t translating linearly into what you can buy. Luna: So the companies are paying more, but the prices for things like insurance, healthcare, and home services aren’t dropping back to pre-pandemic levels? Lucas: They aren’t dropping. They’re just rising slower than they used to. But slower is still up. If your income goes up three percent, but the cost of your auto insurance or your internet bill goes up four percent, you are effectively taking a cut. The data supports this disconnect. Look at the Core PCE Price Index for July first. It sits at one hundred thirty point seven, up from one hundred thirty point three four. It’s barely moving, yes, but it never moves backward. Meanwhile, median usual weekly earnings were recorded at one thousand two hundred four dollars back in January. That sounds strong until you layer it over these persistent service hikes. Luna: It’s frustrating because the goods side of inflation collapsed. You can go buy a TV or a laptop for less now, but those are discretionary. The stuff you can’t skip keeps creeping up. Lucas: Precisely. We spent the last few episodes talking about rent, childcare, and groceries. Those matter. But today I want to drill into the invisible tax of the service sector. Think about your last utility bill or your medical deductible. These are items where competition is low and labor is high. The Employment Cost Index tells us labor is getting expensive for providers, and they pass that on. It creates a scenario where your nominal wage rises, but your real wage—the amount of actual service you can purchase—stagnates. Luna: So it’s a lagging effect. The wage catches up to goods prices, but it’s always chasing service prices. Lucas: That’s the structure of it. And there is another piece to this puzzle that most listeners miss. It’s the difference between what the government calls inflation and what you feel. We have the CPI at three hundred thirty-two point eight, but the Core CPI is higher at three hundred thirty-six point eight. That spread matters. It means food and energy are relatively tame, masking the pressure in everything else. When you strip out the volatile items, the underlying cost of living is significantly higher than the headline number suggests. Luna: Which makes budgeting really hard because you plan around the headline number, but live in the core number. Lucas: Spot on. You plan for three percent inflation, but your reality is closer to four or five percent in the categories that drain your monthly cash flow. Now, before we dive deeper into the mechanics of why this is happening, I want to take a quick beat. If walking through the economy with us has made something click, the way these stay ad-free is listener support. You can help keep this analysis sharp by buying me a coffee dot com slash fexingo. It’s a small way to keep the research rigorous without cluttering the show with ads. Luna: Yeah, and honestly, if you find the breakdown of these indices helpful for your own planning, that support directly funds the time we spend verifying these dates and sources. Lucas: Appreciate it. Now, back to the grind. Why are service prices so sticky? It comes down to labor intensity. Unlike manufacturing, which has automated and globalized, services like haircuts, legal advice, home repair, and even basic administrative support rely heavily on human hours. The Average Hourly Earnings for private industry hit thirty-seven point eight dollars in August. That is up from thirty-seven point sixty-five. Employers are paying more per hour. Unless they become magically more efficient, those costs get baked into your monthly subscription or your annual renewal. Luna: So the automation boom hasn’t hit the parts of the economy that matter most to household budgets yet? Lucas: Not in the ways that lower your bill. AI might help a lawyer draft a contract faster, but the client still pays for the judgment and the liability. The value shifts, but the price floor remains elevated. This is why the ten-year breakeven inflation rate sits at two point three five percent. Markets expect inflation to linger in that range, and consumers should too. It’s not a crisis level, but it’s a permanent tax on purchasing power growth. Luna: Two point three five percent is the new normal baseline? That changes how you invest savings, too. Lucas: It absolutely does. If your savings account yields one point five percent, you are losing ground every single day. The gap between your wage growth and your investment return needs to be wider than that two point three five percent anchor. This brings us to the S&P 500, which is trading at seven thousand six hundred seventy-four. It’s up point six percent over the last five days. The market is pricing in stability, but stability for corporations isn’t the same as abundance for households. Luna: Corporations see higher margins because they’ve raised prices, while households feel the pinch because their expenses don’t drop. Lucas: Right. And the Dow Jones Industrial Average is sitting at fifty-two thousand seven hundred eighty-six, flat over the week. It’s a quiet period, but the underlying dynamics are shifting. The key takeaway here is that 'disinflation' is not 'deflation'. Prices are stopping their rapid climb, but they are not falling. Your raise buys you more goods, maybe, but it doesn’t buy you more freedom. The service sector absorbs the extra income. Luna: So the strategy for listeners shouldn’t just be 'get a raise', it should be 'optimize fixed costs'? Lucas: Exactly. Because the raise will likely be eaten by the next service renewal. You have to actively fight the sticky costs. Negotiate internet bills, shop insurance annually, delay discretionary upgrades until the wage-service gap widens. It’s defensive economics. We see this in the NASDAQ, up point two percent recently, driven by tech stocks that benefit from the very efficiency gains that aren’t helping your local plumber’s rates. Luna: Tech gets the efficiency discount; the rest of us pay the labor premium. It’s a bifurcated economy. Lucas: A bifurcated economy is the best way to describe it. One side enjoys the fruits of productivity; the other side waits for wages to catch up to the cost of participation. The Employment Cost Index shows the cost is rising, but the median earnings of one thousand two hundred four dollars tell us the pace is gradual. It’s a slow boil. And that’s dangerous because it lulls people into complacency. Luna: Complacency is expensive. Especially when the Core CPI is hiding the true cost behind the food and energy mask. Lucas: Always. So, if you’re listening to this and feeling like your paycheck is shrinking in utility, remember: it’s not just you. It’s the structural divergence between goods deflation and service inflation. The data from August and July confirms it. Your task now is to manage the latter, because the former is already managed by the market. Luna: Smart. Focus on what you can control in a market that won’t move for you. Lucas: Precisely. We’ll leave you with that thought as you head into the week. Keep an eye on those service contracts, and question whether that raise is actually increasing your purchasing power, or just funding the next bill. Luna: Thanks for tuning in to Wages and Prices with Fexingo.