Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of a Night Out
Transcript
- Lucas: Luna, we just crossed a threshold I didn't think we'd hit this year. The average hourly earnings for private workers hit $37.60 as of June. That's up from $37.51 the month before. Meanwhile, the cost of eating out — the 'food away from home' component of CPI — rose only 0.2 percent in May. That means for the first time in a long while, a raise is actually covering more of a night out. Luna: Wait, so the gap is finally closing? I feel like for the past few years every time I went to a restaurant the bill was notably higher, and my paycheck didn't seem to keep up. Lucas: Right. And that was the story from 2021 through early 2025. Restaurants had pricing power — they passed through higher ingredient costs, higher labor costs, and then some. Menu prices were climbing at an annual rate of 5 to 6 percent. But something shifted. In the last twelve months, food away from home inflation has cooled to roughly 3 percent. And wage growth has been hovering around 4 percent. So the gap is positive. Luna: Is that because restaurants just can't raise prices anymore? Or because the mix of where we're eating is changing? Lucas: It's both. On the pricing side, consumer resistance is real. People started pushing back — they order fewer appetizers, skip the second drink, or just go out less often. So restaurants have to be more careful. And on the mix side, there's this interesting shift toward 'experiences' spending that actually benefits workers. When people spend on travel, concerts, and events, they're also spending on food — but at different price points. Fast-casual and mid-tier restaurants are seeing more traffic than fine dining, and that keeps average check sizes lower. Luna: So the typical worker's dollar is stretching further if they're going to a Chipotle rather than a tasting-menu spot. Lucas: Exactly. And even at the higher end, the pricing power has faded. The labor market softening we saw in the June jobs report — only 57,000 payrolls added, unemployment at 4.2 percent — that takes some heat out of wage demands for servers and cooks, which was a big driver of menu price increases. So the whole cycle is cooling. Luna: It's a virtuous loop for the consumer, but a tough one for the restaurant operator. Lucas: And that's the tension. Restaurant margins are under pressure again. But from the worker's standpoint, it's good news. Let me give you a concrete example. The median usual weekly earnings are now $1,204. That's for full-time wage and salary workers. If you're earning that, and you go out to dinner twice a week — say an average of $50 per visit, which includes tip — that's $400 a month, or about 33 percent of your weekly paycheck. A year ago, that same $50 meal would have cost maybe $48.50, but your weekly earnings were only about $1,159. So the meal was actually a slightly higher share of your income. Now it's a tick lower. Luna: So that 33 percent might have been 34 percent before. Small change, but directionally important. Lucas: Absolutely. And over time, those basis points compound. If you're dining out twice a week for a year, that difference — roughly $1.50 per meal saved relative to wage growth — adds up to over $150 a year. Not life-changing, but it's real. Luna: And that's just one category. We've done a whole series on raises beating rent, beating tuition, beating streaming costs. This feels like the first time the 'experience' category is also tilting in the worker's favor. Lucas: It is. And it's worth noting that this isn't just about restaurants. The broader services inflation — things like haircuts, dry cleaning, even concert tickets — has been sticky but is starting to moderate. The employment cost index for wages, which is a broader measure, was at 177.5 in the first quarter, up 0.7 percent from the previous quarter. That's a deceleration from the 1.1 percent quarterly gains we saw in 2023. So wages are still growing, but more slowly. And prices are growing even more slowly. Luna: So the worker is in a sweet spot right now? Or is there a risk that wage growth slows too much and we're back to the old dynamic? Lucas: That's the million-dollar question. The labor market is clearly cooling. The participation rate fell to its lowest in 50 years outside of Covid — that's a sign that some workers are dropping out, which could eventually put upward pressure on wages again if demand stays. But the headline payrolls number was weak. So the Fed's balancing act is delicate. They want to keep inflation contained but not tip the economy into a recession where wage growth collapses. Luna: And the breakeven inflation rate — the market's expectation — is at 2.25 percent. That's basically flat. So the bond market thinks the Fed has done enough. Lucas: Right. The 10-year breakeven hasn't budged. That suggests investors believe inflation is anchored. Which means the real wage gains workers have seen recently — the gap between nominal wage growth and actual inflation — could persist for a while. That's a big deal for household purchasing power. Luna: You know, we talk a lot about the numbers on this show, but the reason we do it — the reason we don't run ads — is because we think this kind of concrete analysis helps people make better decisions. Lucas: Yeah, that's the whole idea. And we deliberately keep the show ad-free so we can focus on what matters without interruption. If you've found value in that — if walking through the economy with us has made something click — the best way to support it is a simple gesture. Buy me a coffee dot com slash fexingo. Luna: It's a small thing that makes a big difference in keeping this going. So, back to restaurants — we've seen that the cost of a night out is finally becoming more manageable. But what about the cost of alcohol specifically? That's a separate line item in the CPI. Lucas: Good question. Alcoholic beverages away from home — so drinks at a bar or restaurant — have actually been a bit stickier. That sub-index is still running around 3.5 percent annual inflation. But even there, wage growth is outpacing it. So if you're having a beer with that dinner, the same logic applies. Luna: So what's the one thing you'd tell a listener to take away from this episode? Lucas: The concrete takeaway: if your raise this year was around 4 percent, and you typically spend about $50 on a restaurant meal, that same meal now costs you a slightly smaller fraction of your weekly income than it did a year ago. It's not a huge shift, but it's the first time in this recovery that the trend is working in your favor on the experience side. And if you're a restaurant owner, the message is: be careful with menu price increases, because consumers are watching. Luna: And the broader trend — wages beating prices — seems to be broadening beyond just necessities. Lucas: Exactly. We started this series with rent, then tuition, then healthcare. Now we're at dining out. If the pattern holds, we might soon see it in categories like airfare or hotel rooms. That would be a real signal that the worker's purchasing power is on solid ground. Luna: We'll keep tracking it. Thanks, Lucas. Lucas: Thanks, Luna. And to our listeners — here's to 100 episodes of real wage analysis. Cheers.