Daniel wrote in from Israel with a travel observation that turned into a full economic puzzle. He visits the US every summer, sees the in-laws, buys things on Amazon to bring back. And for years, the pattern was stable: the US was cheaper, Israel was expensive, and Amazon was the cheat code. But this year something felt off. Grocery stores — cheese, specifically — suddenly didn't look like a bargain. Eating out felt shocking. Amazon still worked, but he had to hunt harder for the deals. So he's asking two things. One: is the cost-of-living gap between the US and Israel actually narrowing, or is he imagining it? And two: how would you even fairly compare real income between two countries when exchange rates swing around and local prices don't track neatly? He admits he hasn't been watching US wage data, so he wants the full picture — prices, wages, and methodology.
The cheese thing is what tells me his radar is working. Because US cheese prices have done something specific since 2019 that maps almost perfectly onto what he's describing. Cheddar — just standard block cheddar — was around four dollars and fifty cents a pound in 2019. It's now about five eighty-five. That's a thirty percent increase. And Israel's dairy market is heavily regulated — there are price controls on basic dairy items. So the Israeli price for a comparable cheese was maybe five eighty a pound in 2019, and it's barely budged since. He's looking at a gap that used to be a dollar thirty in his favor and seeing it basically vanish.
So his cheese radar is calibrated. That's good to know. But cheese is one item. What's the broader picture? Is the US actually catching up to Israel on consumer prices, or is he just hitting a few unlucky categories?
The Numbeo data from this month gives us the snapshot. US consumer prices overall are about nine point two percent higher than Israel's. But that number is hiding a split. US rent is fifty-three percent higher than Israel — that's the single biggest driver of the headline difference. Groceries, meanwhile, are only about two percent cheaper in the US. So if you're a visitor like Daniel who isn't paying rent — he's staying with in-laws — the rent advantage doesn't touch him. He's experiencing the grocery and dining-out basket, where the gap is small and shrinking.
He's experiencing the part of the index that's been moving against the US, and none of the part that's been moving in its favor. That would explain why his felt experience is more dramatic than the headline number.
And dining out — he mentioned that too — US food-away-from-home prices are up about twenty-four percent since 2019. Israel's restaurant inflation was lower over the same period. So a meal that felt like a bargain in 2019 now feels about the same, or worse.
Let's get the wage side in here, because he specifically said he hasn't been tracking it. What's happened to US real wages since 2019?
This is the part that should worry people. The FRED data on real average hourly earnings — that's wages adjusted for inflation — shows a grim seven years. In the first quarter of 2019, real average hourly earnings were about eleven dollars and thirty-five cents. By the second quarter of 2026, they're about eleven fifty-two. That's a one and a half percent gain over seven years. Nominal wages are up something like twenty-five percent, but inflation ate almost all of it.
So the typical American worker has treaded water for the better part of a decade.
Barely kept their nose above it. And that's an average. The composition effects during the pandemic make this messy — in early 2020, real wages actually spiked because millions of low-wage workers were laid off, so the average was suddenly weighted toward higher earners. The real wage number looked great for about six months, and then it collapsed through 2022 as those workers came back and inflation hit. We've only just recovered to where we were.
Which means if Daniel is comparing his Israeli salary — converted at whatever exchange rate — to US prices, he's feeling the squeeze from both sides. US prices are up, and US wages haven't actually gained purchasing power. But the Israeli wage story is different, right?
Israeli real wages have grown more over this period. Inflation there peaked at about four and a half percent versus eight percent in the US, and nominal wage growth was comparable. So the Israeli worker has actually gained some ground. Daniel's purchasing power back home is probably better than it was in 2019. Meanwhile, the American in-laws he's visiting... not so much.
That's the dynamic he's sensing. He's coming from a place where real incomes improved, into a place where they didn't, and the prices he actually encounters — groceries, restaurants — have converged or inverted. The Amazon exception makes sense in that framework too.
It does. Durable goods and electronics — the stuff Amazon is built on — have actually seen relative deflation. Supply chains normalized, competition kept margins thin, and a lot of general merchandise is cheaper in real terms than it was in 2019. But the distribution of those deals has thinned. The obvious bargains — the blender that was half the Israeli price with one click — those are harder to find because US general merchandise inflation has caught up some. You have to search. Daniel's observation that Amazon still works but requires more hunting is exactly what you'd expect when the low-hanging arbitrage fruit has been picked.
So we've got the empirical picture. The gap is narrowing. Real US wages are flat. Specific categories Daniel encounters have converged or inverted. But he asked a deeper question too — how do you actually do this comparison fairly? Exchange rates, purchasing power, methodology. That's where it gets interesting.
The exchange rate problem is the first thing to get right, because it's the one most people get wrong. The shekel has swung against the dollar significantly. In 2020, it was about three point two shekels to the dollar. By 2023, it weakened to three point seven. Now it's back to about three point four. If you just convert your Israeli salary at the market rate and compare prices, Israel got cheaper then more expensive then cheaper again — but nobody's actual domestic purchasing power swung that much. The exchange rate is doing things that have nothing to do with the price of milk in Tel Aviv.
The exchange rate is telling you what currency traders think about interest rate differentials, not what a shopping basket costs.
Right. So the tool economists use instead is Purchasing Power Parity — PPP. The OECD calculates conversion factors that ask: what does a comparable basket of goods and services actually cost in each country, expressed in a common currency? The PPP rate for Israel is about three point seven shekels to the dollar, compared to the market rate of three point four. That gap — three point seven versus three point four — means the shekel buys more domestically than the exchange rate suggests. If you use market rates, you're understating Israeli purchasing power by about eight or nine percent.
So step one in a fair comparison is: throw out the market exchange rate and use PPP. What's step two?
Step two is picking the right income measure. GDP per capita at PPP is the one everyone reaches for — the US is about seventy-six thousand dollars, Israel about forty-two thousand. That's a forty-five percent gap. But GDP per capita includes corporate profits, government spending, things that don't show up in anyone's paycheck. For Daniel's question — what can a typical person actually buy — you want median disposable income, adjusted for PPP.
And that number looks different.
It does. Using the OECD data, US median disposable income at PPP is roughly forty-five thousand dollars. Israel is about thirty-two thousand. That puts the Israeli median earner at about seventy-one percent of US purchasing power — not the fifty-five percent that GDP per capita would suggest, and certainly not the fifty percent or less that market exchange rates would suggest. The gap is real, but it's smaller than most people think.
Seventy-one percent is a lot more than half. That's the difference between "Israel is crushingly expensive compared to the US" and "Israel is somewhat more expensive, but the order of magnitude is the same."
And it explains something about Daniel's experience that he might not have articulated. When the gap is seventy-one percent rather than fifty percent, small changes matter more. A five percentage point narrowing of the purchasing power gap — which is roughly what's happened since 2019 — is noticeable. It's the difference between a US grocery trip feeling like a bargain and feeling like, wait, this isn't that much cheaper.
Let's put a number on that narrowing. US inflation ran hotter than Israel's from 2021 through 2023 — eight percent peak versus four and a half. The US lost some of its price advantage during that window. But US nominal wage growth also outpaced Israel's. The net effect, by my read, is that the purchasing power gap narrowed by about five to eight percentage points since 2019. Real, but not a reversal.
That's the right ballpark. The US is still cheaper on balance for most consumer goods, but the margin has shrunk. And for specific categories — dairy, dining out — it's shrunk to near zero or inverted. Daniel's cheese radar wasn't lying.
There's a hidden variable in all of this that he didn't mention, and it's the single biggest factor in any cross-country cost-of-living comparison: housing. US rent is fifty-three percent higher than Israel, per Numbeo. But Daniel's a visitor — he's not renting. So the single largest US cost disadvantage doesn't touch him. Meanwhile, the things he does buy — food, meals out — are in the categories where the US advantage has eroded most.
Housing also shapes the wage side in ways that are easy to miss. US wages are higher partly because US housing costs are higher — employers have to pay enough for workers to afford rent. If you're comparing two countries and one has much higher housing costs, the wage premium in that country isn't pure purchasing power — it's partially consumed by the roof over your head. A fair comparison has to account for that, and PPP baskets do, but it means the number that matters for Daniel specifically — a visitor who doesn't pay US rent — is different from the number that matters for someone considering moving.
So we've got three layers to his question. Layer one: what happened to prices? US consumer inflation of twenty-one to twenty-two percent cumulatively since 2019, with groceries and dining out at the high end, durables at the low end. Layer two: what happened to wages? Real average hourly earnings up one and a half percent — effectively flat. Layer three: how do you compare across countries? Use PPP, not exchange rates. Use median disposable income, not GDP per capita. Recognize that housing is the dominant variable and it may or may not apply to your situation.
And the answer to his core question — is the gap really closing — is yes, but the mechanism is more interesting than just "US prices went up." US prices did go up, and US real wages didn't. Israeli real wages did better. The shekel strengthened against the dollar from 2022 to 2026, which means when Daniel converts his mental Israeli prices to dollars, everything in the US looks more expensive even if the underlying gap hasn't moved as much as it feels. There's an exchange rate illusion layered on top of real price convergence.
The exchange rate illusion is worth sitting with for a second, because it's subtle. If the shekel strengthens from three point seven to three point four, a hundred-shekel item in Israel goes from looking like twenty-seven dollars to looking like twenty-nine dollars in Daniel's head. But the actual shekel price hasn't changed. His brain is doing a currency conversion that makes US prices look relatively worse, even before any real price changes.
And the real price changes are also moving against the US. So both effects are pushing in the same direction. No wonder it feels dramatic.
We've been talking about Israel and the US, but the methodology question Daniel asked is bigger than that. If someone wanted to do this comparison for any two countries — say they're considering a job offer abroad, or they're just curious whether the grass is greener — what's the practical approach?
Start with Numbeo. It's crowdsourced, it's not perfect, but it gives you a weighted basket of fifty-plus items including rent, groceries, restaurants, and local purchasing power. The site lets you compare two cities or two countries side by side. That's your snapshot. For trends, you need the official inflation data — BLS for the US, the Central Bureau of Statistics for Israel, and so on. For the income side, the OECD's Better Life Index publishes median disposable income at PPP for member countries. That's the gold standard for the question Daniel is asking.
And if you're comparing a country that isn't in the OECD?
The World Bank publishes PPP conversion factors for most countries, and the International Comparison Program does a massive global price survey every few years. The data gets spottier outside the OECD, but the framework is the same: PPP-adjusted income divided by a comparable price index. The hard part isn't the math, it's finding reliable local price data.
The hard part is also deciding what basket matters for you. Daniel's basket — groceries, dining out, Amazon purchases, no rent — is different from a local's basket. A fair comparison has to start with the question: what am I actually buying?
That's the point most methodology discussions miss. PPP is designed for a representative national basket. But you're not a representative national consumer. If you're a remote worker earning dollars and living in a low-rent country, your personal PPP is wildly different from the national average. If you're a visitor who doesn't pay rent, same thing. The framework is a starting point, not an answer.
Daniel's Amazon habit is a perfect example. Amazon prices reflect US durable goods markets, which have seen relative deflation. If he buys mostly durables on Amazon and mostly groceries locally in Israel, his personal inflation rate is lower than either country's CPI. He's arbitraging the categories.
He's been doing it instinctively for years. The observation that it's getting harder is the signal that the arbitrage is closing. Global price convergence is real, it's just slow and uneven — and the last few years accelerated it in some categories while leaving others untouched.
Let's talk about where this goes next. The convergence Daniel is feeling — is it a permanent shift, or a temporary blip from differential inflation that will revert?
Some of it is probably permanent. The supply chain reshuffling of the early 2020s — diversification away from single-source manufacturing, friendshoring, higher inventory levels — those are structural changes that raised the floor on goods prices globally. The era of ever-cheaper durables may be over, or at least paused. Meanwhile, US housing policy hasn't changed in ways that would bring rent inflation down meaningfully, and US labor markets remain tight. The structural factors that made the US expensive relative to Israel in some categories and cheap in others are shifting.
The strong dollar policy is another structural factor. The US has run a strong dollar for decades, which makes imports cheap and exports expensive. That's part of why Amazon always looked like a bargain to Daniel — he was buying goods priced for a strong-currency market while earning in a weaker one. If the dollar weakens — and there are reasons to think it might, given US fiscal trajectories — that advantage erodes further.
The trade policy piece is live right now too. The US just hit Canadian goods with fifty percent tariffs after trade talks failed. If that kind of thing broadens — if the US moves toward higher tariffs on a wider range of imports — those Amazon prices Daniel relies on start reflecting tariff costs. The durable goods deflation we've seen could reverse.
So the convergence Daniel is feeling might actually accelerate, depending on how trade policy plays out. That's not a prediction, but it's a risk.
It's a risk. And on the Israeli side, there are countervailing forces. Israel's cost of living is driven heavily by lack of competition in import markets, high VAT, and regulatory barriers. If those get reformed — and there's been political pressure for cost-of-living reform for years — Israeli prices could come down, widening the gap again. None of this is static.
The open question, then, is whether the narrowing Daniel observed is a one-time adjustment — differential inflation that's now mostly played out — or the beginning of a longer convergence. My guess is it's a bit of both. The big inflation differential of 2021 to 2023 was a one-time shock that won't repeat at that magnitude. But the structural stuff — supply chains, housing, trade policy — is still moving.
And the methodology lesson is portable. Whatever happens to the US-Israel gap, the right way to think about it is PPP-adjusted median income, with the basket customized to your actual spending, and the exchange rate treated as noise rather than signal.
Hilbert: The exchange rate isn't noise. It's the whole thing.
Go on.
Hilbert: I spent six months in Tel Aviv in 2019. Consulting for a grocery chain — they were trying to figure out why their imported cheese margins were collapsing. I lived in a sublet in Florentin. Kept a spreadsheet of every receipt because I was convinced the data was wrong. Forty-eight shekels for a French camembert in Israel. Five ninety-nine in the US. At the 2019 exchange rate — three point two — that US camembert was nineteen shekels. A sixty percent discount. Same cheese, same brand, different shelf.
And by 2026?
Hilbert: Fifty-two shekels in Israel. Seven forty-nine in the US. At three point four shekels to the dollar, the US price converts to about twenty-five and a half shekels. Still a fifty-one percent discount. The gap narrowed nine percentage points in seven years. Daniel feels like it collapsed. The spreadsheet says it didn't. What collapsed was the exchange rate advantage in his head.
Because he's converting at three point four instead of three point two, and the US dollar price also went up. Both numbers moved against him, but the exchange rate move is doing more of the work than he realizes.
Hilbert: The camembert in Israel went up four shekels in seven years. The camembert in the US went up a dollar fifty. The real convergence is modest. The felt convergence is huge, because his mental math has the shekel strengthening twelve percent since 2022 and US prices up twenty percent. Multiply those together and a trip to the grocery store feels like a mugging.
The spreadsheet is the antidote to the exchange rate illusion. You track the actual local-currency prices over time, and you convert at a fixed rate if you want to compare purchasing power. Otherwise you're measuring currency markets, not cost of living.
Hilbert: I still have the spreadsheet.
Of course you do.
Hilbert: The grocery chain didn't want it. They said the problem was Israeli import duties, not exchange rates. They were right about the duties. But they were wrong that the exchange rate didn't matter. The shekel moved from three point two to three point seven and back to three point four in the space of four years. A consumer who shops in both countries — like Daniel — feels every swing. The duties are static. The currency is what makes the comparison feel unhinged.
The duties are the structural factor. The currency is the volatility layered on top. Daniel's experience is both things hitting at once — structural price convergence plus a currency swing that amplifies it.
Hilbert: The camembert importer in Tel Aviv was a man named Shlomo. He priced in dollars and converted at the weekly rate. When the shekel weakened to three point seven, his margins evaporated and he raised prices. When it strengthened back to three point four, he didn't lower them. So the Israeli consumer paid the weak-shekel price long after the shekel recovered. That's not in any CPI model.
Sticky prices in the import supply chain. The exchange rate passes through asymmetrically — fast on the way up, slow on the way down.
Hilbert: Shlomo called it "the float." He'd float the price up with the dollar and let it sit there. His customers complained. He said, what do you want, I have to eat.
The human factor. The models assume rational pass-through. The reality is Shlomo protecting his margin and hoping nobody notices the shekel strengthened.
Hilbert: He noticed. He just didn't care.
So the gap Daniel feels is partly real convergence, partly exchange rate illusion, and partly Shlomo.
Hilbert: Shlomo is everywhere. Every country has Shlomos. That's why cross-country comparisons are never as clean as the methodology says. The PPP basket assumes competitive pass-through. The real world has guys who float the price up and go quiet when it should come down.
Which means the Numbeo snapshot and the PPP framework are the best tools we have, but they're measuring an idealized version of the economy. The actual experience of a cross-border consumer includes a layer of pricing friction that no index captures well.
Hilbert: The index tells you the gap narrowed five to eight points. The grocery aisle tells you it feels like thirty. Both are true. The index is measuring the basket. The aisle is measuring the sticker shock on the specific items you actually buy, converted at the rate you remember from last year.
The misconception most people hold about this topic is that exchange rates give you an accurate picture of relative cost of living. They don't. The shekel buys about eight or nine percent more domestically than the market rate suggests, and the rate itself swings for reasons that have nothing to do with local prices. Use PPP.
The second misconception is that the US is universally cheaper than Israel. US rent is fifty-three percent higher. Specific grocery categories like dairy have nearly converged. The gap still exists, but it's narrower and more uneven than the envy narrative suggests.
The convergence Daniel is feeling is real, but smaller than it seems — maybe five to eight percentage points of purchasing power since 2019. The rest is exchange rate illusion and category-specific sticker shock. If the next supply chain shock hits, or if US trade policy shifts further toward tariffs, the convergence could accelerate. If Israeli cost-of-living reforms actually happen, it could reverse. Daniel's annual visit is a leading indicator either way.
Thanks to our producer Hilbert Flumingtop for the spreadsheet and the Shlomo story. Both matter more than the models want to admit.
This has been My Weird Prompts. If you've got a travel observation that turned into an economic puzzle — or any weird prompt about prices, purchasing power, or the hidden assumptions in your own receipts — email the show at show at my weird prompts dot com.
We'll be back soon.
