Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Raises Are Finally Beating the Cost of Staying Healthy
Transcript
- Lucas: So we've spent a lot of episodes this year talking about how your raise is finally beating the cost of, well, just about everything. But there's one category we haven't touched yet, and it's the one that probably scares people the most: healthcare. Luna: Yeah, because if there's one thing that feels like it's always going up faster than your paycheck, it's medical bills. Lucas: Right. And for years, that was actually true. Healthcare inflation has historically run hot. But here's the thing: the latest data suggests the worm has turned. Average hourly earnings are up about three-point-one percent over the past year, while core CPI, which strips out food and energy, is running at just two-point-six percent. That's a real gap in your favor. Luna: So your raise is actually outpacing the stuff that's supposed to be impossible to keep up with. What's driving that? Is it just that overall inflation cooled, or is something specific happening in healthcare? Lucas: It's a mix. Overall inflation has definitely slowed — the July CPI report showed core prices up just zero-point-two percent month over month. But within healthcare, there are some real structural shifts. Take generic drugs. Prices for generics have been falling for years, and that's accelerating. Meanwhile, the big brand-name drugs that dominate headlines are seeing more price pressure, but the overall basket is getting cheaper. Luna: Interesting. So the stuff that most people actually buy at the pharmacy counter — the generics — is getting less expensive. What about hospital services? I feel like that's where people really get hit. Lucas: Hospital prices are still rising, but they're rising more slowly than they used to. The employment cost index for wages is up about zero-point-eight percent in the latest quarter, and that's a big input for hospitals — labor is their biggest cost. When wage growth in healthcare moderates, it takes some pressure off those prices. Plus, there's been a lot of investment in outpatient care and telemedicine, which shifts procedures to cheaper settings. Luna: So the system is kind of self-correcting. But let's talk about what this actually means for a typical worker. If your raise is three percent and healthcare costs are only going up two percent, that's a real win, right? Lucas: It is, but there's a nuance. Healthcare costs aren't distributed evenly. If you're on a high-deductible plan, you might still feel the sting of a single expensive procedure. But on average, the trend is clear: your purchasing power for healthcare is improving. And that's a big deal because healthcare is one of the largest spending categories for most families. Luna: And it's not just about today. If this trend continues, it could have a huge impact on how people feel about the economy. The 'vibecession' we heard so much about was partly driven by healthcare costs eating into paychecks. Lucas: Exactly. And it's not just vibes. When healthcare costs take up a smaller share of your income, you have more to spend elsewhere. That's good for the whole economy. But we should be careful not to get too excited — one quarter doesn't make a trend. We need to see if this holds up. Luna: Sure, but let's look at the data we have. The ten-year breakeven inflation rate is around two-point-three percent, so markets expect inflation to stay low. And wage growth is still above that. That's a healthy sign for workers. Lucas: Yeah, and the Federal Reserve is watching this closely. If wage growth stays above inflation without reigniting price pressures, that's the sweet spot — a soft landing with real income gains. But if wages accelerate too much, the Fed might have to step in. Luna: So what should the average person do with this information? I mean, we're not financial advisors, but it's useful to know that your raise is actually keeping up. Lucas: I think the takeaway is: don't assume your raise is being eaten by healthcare costs. Check the actual numbers. And if you're negotiating a raise, you can use this data as leverage — healthcare costs are rising slower than your productivity, so you deserve a bigger piece of the pie. Luna: That's a good point. And speaking of your piece of the pie — if you've been getting value out of our conversations about wages and prices, a couple of dollars a month is genuinely what keeps these going. You can support us at buy me a coffee dot com slash fexingo. Lucas: Yeah, we really appreciate that. It keeps the show ad-free and helps us dig into these topics. But back to the data — one thing I want to highlight is the difference between headline and core inflation. Headline CPI was flat in July, but core was up zero-point-two percent. That core number is what the Fed watches, and it's running below wage growth. Luna: And what about the fact that wages themselves are rising? The average hourly earnings figure hit thirty-seven dollars and sixty cents in July. That's up from a year ago. Is that sustainable? Lucas: It is if productivity keeps up. Right now, productivity growth has been decent, so businesses can afford to pay more without raising prices too much. That's the key to making this work — if productivity stalls, then wage growth just becomes inflation. Luna: So is the 'healthcare is always going up' narrative officially dead? Or are we just in a lucky patch? Lucas: I'd say it's too early to declare victory. Healthcare is complex, and there are a lot of moving parts — policy changes, drug pricing reform, the shift to value-based care. But the current data is encouraging. And for workers, that's a reason to feel a bit more confident about their financial situation. Luna: Well, I'm going to keep an eye on this. If healthcare costs keep rising slower than wages, that's a story worth telling. Lucas: Definitely. And we'll be here to break it down. Thanks for listening.