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 New Car
Transcript
- Lucas: So Luna, have you seen the latest numbers on what it actually costs to buy a new car these days? Because something interesting is happening — for the first time in years, pay raises are finally outpacing the sticker price. Luna: Wait, really? I feel like every time I look at car prices, they're just going up and up. What changed? Lucas: Well, let's start with the data. In July, average hourly earnings for private workers hit thirty-seven sixty — that's up about four percent from a year earlier. Meanwhile, the consumer price index for new vehicles has actually been cooling. In fact, over the past year, new car prices have risen less than two percent. Luna: So wages are growing twice as fast as car prices? That does sound like a shift. Lucas: Exactly. And it's not just a blip. If you look back at the last few years, car prices spiked during the pandemic because of supply chain issues — you remember the chip shortage — and average new car prices went from around thirty-eight thousand in 2019 to over forty-eight thousand by mid-2022. That was brutal for buyers. Luna: Right, I remember people paying over sticker price. So what's driving the slowdown now? Is it just supply catching up? Lucas: Partly. Production has normalized, inventory is back on lots, and manufacturers are offering discounts again. But there's also a demand factor. Consumer confidence has been shaky — you see it in the recent pullback in retail sales — so people are hesitating, and that's putting downward pressure on prices. Luna: So it's a buyer's market again? That feels like a headline from 2019. Lucas: It's getting there, but I'd say it's more like a balanced market. The average transaction price is still around forty-eight thousand, which is high historically. But when you factor in that wages are up, the affordability picture is the best it's been in several years. Luna: So how much better exactly? Can we put a number on it? Lucas: Sure. Let's do a quick back of the envelope. Say you're a typical private-sector worker earning the average hourly rate. If you work full-time, that's roughly seventy-five thousand a year. A year ago, the average new car cost about forty-eight thousand, and your annual income was around seventy-two thousand. So the car was about sixty-seven percent of your annual income. Luna: Okay, that's a big chunk. Lucas: Now, with the latest data, your income is up to about seventy-eight thousand, and the car is still around forty-eight thousand. That drops the ratio to about sixty-two percent. That's a real improvement in purchasing power. Luna: Six hundred dollars less in terms of how many hours you'd have to work. That's not nothing. Lucas: Exactly. And it's not just new cars. The CPI for used cars has actually declined over the past year, too — down about three percent. So the whole transportation category is becoming more affordable relative to wages. Luna: But is this a sustainable trend? I mean, wages have been growing about four percent, but core inflation is still above two percent. How long can this last? Lucas: That's the big question. One thing to watch is the ten-year breakeven inflation rate, which is currently around two point three percent. That suggests the market expects inflation to stay moderate. If wage growth keeps running at four percent, then real wages are rising — and that's good for consumers. Luna: But there's always a catch, right? What could derail this? Lucas: The main risk is if the labor market weakens. If unemployment starts to rise, wage growth will likely cool off, and then you're back to the car costing more in terms of hours worked. So the sustainability really depends on the overall economy holding up. Luna: And there's the whole electric vehicle transition. Are EVs affecting these numbers? Lucas: They are, actually. EV prices have been dropping, partly because of competition from Tesla and the Chinese makers, but also because battery costs have come down. That's putting downward pressure on the average transaction price, which helps the overall affordability picture. Luna: So if you're in the market for a car, this might be a good time. But I imagine there's still a lot of anxiety about the economy. What's your take? Lucas: Look, I think it's genuinely encouraging that wages are finally outpacing car prices. It's a concrete sign that the post-pandemic inflation shock is fading. But I'd also say: don't expect a return to 2019 prices. The structural costs — materials, labor, technology — are higher. So we're settling into a new normal where cars are expensive, but at least they're not getting more expensive relative to your paycheck. Luna: That's a balanced way to put it. And I think that's a good segue to something we've been thinking about a lot here. We're able to have these kinds of conversations because listeners like you support the show. If you've ever found our breakdown of the economy helpful — whether it's this car thing or something else — and you want to keep it ad-free, you can support us at buy me a coffee dot com slash fexingo. Lucas: Yeah, that's the whole reason we can keep doing this without sponsors. It's a small gesture, but it goes a long way in keeping the show independent. Luna: And we really appreciate that. Now, back to the economy. Lucas, you mentioned the supply chain earlier — how much of the price slowdown is actually due to structural changes versus just cyclical ones? Lucas: Good question. I'd say it's a mix. On the structural side, automakers have invested heavily in more efficient production and are shifting toward fewer, more profitable models. That's keeping costs down. But there's also a cyclical element: higher interest rates have cooled demand, which forces dealers to compete on price. So it's not just one thing. Luna: So if rates come down later this year, demand could pick up and prices might firm again? Lucas: Possibly. But the Fed has been pretty clear that they're not in a rush to cut. And even if they do, the days of double-digit price increases are probably behind us. The market has reset. Luna: What about used cars? You said they're down three percent. Is that a bigger opportunity for buyers? Lucas: Used cars are interesting because they had a massive spike during the pandemic — the average used car price went from around twenty-three thousand in 2019 to over thirty-one thousand in 2022. That was insane. Now they've come down to about twenty-seven thousand, but they're still historically high. The good news is that the supply of used cars is increasing as newer vehicles come off leases, so prices should keep softening. Luna: So if you're on a budget, a used car might be the smarter play right now. Lucas: I think so, especially if you're patient. But the spread between new and used is narrower than it used to be, so sometimes it makes sense to buy new if you plan to keep it for a long time. It depends on your situation. Luna: Got it. So what should our listeners take away from this episode? Like, what's the one thing to remember? Lucas: I'd say this: for the first time in years, your raise is actually keeping up with — and in some cases beating — the cost of a car. That's a concrete sign that the economy is normalizing. But don't expect a return to bargain-basement prices. The new normal is a car that costs around forty-eight thousand dollars, but at least it's not getting more expensive relative to your paycheck. Luna: And that's a good thing. I think we can all appreciate that. Lucas: Absolutely. And if you want to keep up with these trends, we'll be here every day breaking down the numbers. Until next time, keep an eye on those wage figures — they're telling you more than you think.