Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Netflix Bill Feels Sticky While Inflation Cools
Transcript
- Lucas: So I got my monthly credit card statement yesterday, and I have to admit something. My streaming subscriptions now cost me more than my electricity bill. Luna: Wait, really? That's wild. But honestly, not that surprising. The CPI report from July came in at 3.3 percent core, and a big chunk of that is services — including things like subscriptions. Lucas: Right. And here's the thing — the overall inflation rate has cooled a lot from the peaks. But if you look at the actual prices of digital services, they just keep creeping up. Netflix raised prices again last year. Spotify too. And they don't seem to lose many subscribers when they do. Luna: Why is that? I mean, if my coffee shop raises prices, I might start making coffee at home. But I don't cancel Netflix over a two-dollar increase. Lucas: Exactly. That's the puzzle. And it's a great example of what economists call price stickiness. But it's not just about habit. There's real strategy behind these increases. Streaming services have figured out that they can raise prices on the core plan, but they also introduce new tiers — like an ad-supported plan — and that actually changes the psychology. Luna: So they're segmenting the market, right? Some people pay more to avoid ads, some pay less and watch ads. Either way, the company makes more money. Lucas: Precisely. And it works because the marginal cost of serving one more streamer is tiny. The content is already produced. So they can price discriminate more aggressively. That's different from, say, a restaurant, where the cost of ingredients and labor is a big part of the price. Luna: So it's not just that we're lazy or stuck in our habits. The companies have designed this so that switching is mentally costly. You'd have to remember to cancel, compare alternatives, maybe lose your watchlist. Lucas: Yeah, the switching costs are real. And they're built into the product. That's why they can raise prices with relatively low churn. But there's another layer — the macro picture. The Fed is still trying to get inflation down to 2 percent. Core PCE, which is their preferred gauge, came in at 3.3 percent annualized for July. So we're not there yet. Luna: And that's why we're hearing voices like Cleveland Fed President Hammack say 'now is the time to act' on rates. But does that have anything to do with my Netflix bill? Lucas: Indirectly, yes. When the Fed raises rates, borrowing gets more expensive. Streaming companies have a lot of debt — they're content factories, after all. Higher rates mean higher interest costs, which puts pressure on them to raise prices. So the very thing the Fed is doing to fight inflation might be feeding the price hikes you see on your statement. Luna: That's a bit ironic, isn't it? Lucas: It is. But there's a more direct link: the cost of capital. When rates go up, the present value of future revenue goes down. So companies focus on maximizing current revenue — and price increases are the quickest lever. Luna: So what does that mean for us as consumers? Are we just stuck paying more forever? Lucas: Not necessarily. There's a limit to what people will pay. We're already seeing some pushback. People are rotating between services — subscribing for a month, bingeing, then canceling. That's a direct response to price fatigue. So the companies are in a bit of a bind: they need to grow revenue, but they can't just keep raising prices indefinitely. Luna: And that's where bundling comes in. Like the Disney Plus, Hulu, Max bundle — it feels like you're getting more for the same price, even if you're really just paying for all three together. Lucas: Exactly. Bundles are a way to increase revenue per user without raising the headline price. It's a classic strategy. And it works because the perceived value is higher, even if the actual cost to the consumer is about the same as before. Luna: So if I'm paying for a bundle, I might not notice that my total bill went up, but I'm actually spending more than I used to on a single service. Lucas: Right. And that's the kind of thing that doesn't show up in the CPI the way you'd expect. The CPI tries to measure quality changes, but it's hard to capture the subtle pricing tricks. That's why your personal inflation rate might feel higher than the official number. Luna: Speaking of feeling higher — I read that the 10-year breakeven inflation rate is at 2.32 percent, which is basically unchanged. So the market isn't expecting a big spike. But the actual prices we pay keep moving up. Lucas: Yeah, that's a good point. Market-based inflation expectations are anchored. But there's a difference between expectations and realized prices. And for services like streaming, the price increases are real and they're happening now. Luna: So what should the average listener do? Is there any way to push back on these increases? Lucas: Well, one practical tip: audit your subscriptions. The average person underestimates how many they have and how much they cost. There are apps that track this. And then, you know, cancel the ones you don't use. That's the most effective way to put pressure on companies. Luna: That's a good point. And speaking of supporting things you value — we should mention that if you're getting something out of this show, you can support us at buy me a coffee dot com slash fexingo. It's what keeps this podcast independent and ad-free. Lucas: Yeah, that's right. And it really does make a difference. It's like, you know, when you value a product, you're willing to pay a little to keep it going. Luna: Exactly. Anyway, back to the rabbit hole of subscription pricing. One thing I'm curious about: are there any categories that are actually getting cheaper? Because it feels like everything is going up. Lucas: Actually, yes. Goods prices have been flat or falling in some cases. Used cars, for example, have come down. And some electronics — like TVs — are cheaper than they were a few years ago because of deflation in that sector. So it's not all one direction. Luna: So the pain is concentrated in services, especially the ones we use every month. That's why the headline CPI can be 3.3 percent, but our personal experience feels more like 5 or 6. Lucas: Exactly. And that's the disconnect. The official numbers are important, but they're averages. Your individual inflation rate depends on what you buy. If you're a heavy consumer of digital services, your inflation rate is higher than someone who spends more on goods. Luna: So the Fed looks at the average, but we live in the variation. Lucas: Well said. And that's why it's useful to understand these dynamics. It's not just about the headline number. It's about the specific prices you pay. Luna: So what do you see happening in the next six to twelve months? Are streaming prices going to keep climbing, or will we see a plateau? Lucas: I think we'll see continued increases, but at a slower pace. The low-hanging fruit has been picked. They've already raised prices quite a bit. And competition is still intense. So they need to be careful not to push too far and trigger a wave of cancellations. Luna: That's a balancing act. And with the Fed possibly raising rates again, the pressure to generate revenue is only going to increase. Lucas: Right. And that's the macro-micro link. It's not just about your Netflix bill. It's about how the cost of capital ripples through every part of the economy. When rates are high, every company is looking for ways to boost revenue, and that often means higher prices for consumers. Luna: So the next time I see a price increase on my statement, I'll think of the Fed, the debt markets, and the psychology of bundling. Lucas: And maybe you'll think about canceling one of them. Luna: Touché. Thanks for breaking this down, Lucas. It really helps to see the bigger picture. Lucas: Always a pleasure, Luna. And to our listeners — if this episode made you think about your own subscriptions, we'd love to hear your story. But for now, keep an eye on those monthly statements. There's more to them than meets the eye.