Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Internet Bill Is the New Inflation Signal
Transcript
- Lucas: So May's CPI hit 4.2 percent — the highest in three years — and everyone's talking about gas and groceries. But there is a quieter line item that has been steadily climbing, and it's hitting almost every household: your internet bill. Luna: Yeah, I noticed my own bill went up about three dollars last month. I figured it was just some promo expiring. But you're saying this is broader? Lucas: Much broader. If you look at the Bureau of Labor Statistics data for 'telephone and internet services' within the CPI, that category is up about 3 percent year-over-year as of May. That doesn't sound huge, but for context, communication costs had been in steady deflation — down year after year — for most of the past decade. Luna: Right, I remember when broadband prices kept falling. What changed? Lucas: A few things. First, the major ISPs — Comcast, Charter, Verizon, AT&T — have all been raising base rates more aggressively. Second, the infrastructure buildout for fiber and 5G fixed wireless is expensive, and those costs are getting passed through. And third, there's less competition in many markets than there was five years ago. Luna: That last point is key. We've seen a wave of consolidation — mergers like T-Mobile and Sprint, but also smaller regional ISPs getting bought up. Fewer players means less price pressure. Lucas: Exactly. And on top of that, the end of some pandemic-era subsidy programs like the Affordable Connectivity Program has meant that households that were getting $30 or more off their monthly bill are now paying full freight. That's a real shock to the budget. Luna: So the official CPI number for communication services — that 3 percent — might actually understate the pain for a lot of families, because it averages in business plans and legacy lower-tier packages that aren't rising as fast. Lucas: Yeah, that's a really important nuance. The CPI is an average, and if you're a household that lost the subsidy or got bumped from a promotional rate, your personal inflation rate for this category could be 6 or 7 percent. And since internet is now essentially a utility — for work, school, healthcare — it's not something you can easily cut. Luna: Speaking of which, I think it's worth noting that this show is something we get to do because listeners support it. If walking through the economy with us has made something click, you can help keep it ad-free and accessible. That's at buymeacoffee dot com slash fexingo. Lucas: And we really appreciate that. Because it means we can keep digging into the data that actually affects your wallet — like these internet bills. Luna: So let's stay on that. Are there any policy moves that might change this trend? Lucas: The FCC under the current administration has been pushing for more transparency around 'broadband nutrition labels' — those standardized disclosures of price, speeds, and fees. That could help consumers comparison shop more easily. But it doesn't directly cap prices. Luna: Right, and we saw how that played out with cable TV — transparency didn't stop prices from climbing for decades. Lucas: Exactly. And there's also the infrastructure angle. The bipartisan infrastructure law allocated about $65 billion for broadband buildout, but that money is mostly going to unserved areas. It's not subsidizing your existing monthly bill. Luna: So for the typical household, what's the outlook? Do we expect internet costs to keep rising at this pace? Lucas: I think so, at least for the next year or two. The ISPs are still in the middle of capital-intensive upgrades to fiber and DOCSIS 4.0 — which offers multi-gig speeds. Those investments take years to pay off, and in the meantime, they're raising rates. Plus, with inflation broadly still above the Fed's target, everything from labor to equipment costs more. Luna: And there's the 'streaming bundle' effect too. As more people cut the cord on traditional cable, they're paying for internet plus three or four streaming services. The internet part is the non-negotiable pipe. Lucas: Yeah, that's a great point. The CPI actually breaks out 'cable and satellite television' separately from 'internet services.' Cable prices have been rising even faster — around 4.5 percent annually — but because fewer people subscribe, it has less weight in the index. For those who still have it, that's a double hit: internet up, cable up. Luna: Let's talk about the data from the latest CPI release. May's headline was 4.2 percent, but core — excluding food and energy — was 3.9 percent. Where does communication services fit in that core reading? Lucas: Communication is part of core, and it contributed about 0.1 percentage points to the overall core increase. That doesn't sound huge, but it's a reversal from the prior few years when it was actually dragging core inflation down. So it's a headwind now when the Fed is trying to get inflation down. Luna: Right, and the Fed's preferred gauge is the PCE index, which weights things differently. How does internet inflation look in PCE? Lucas: The PCE index for communication services is also showing acceleration, though it tends to run a bit lower than CPI because it incorporates more substitution effects. The April PCE reading had communication services up 2.7 percent year-over-year, compared to 3.0 percent in CPI. But the trend is similar — up and to the right. Luna: So what can people actually do about it? Besides switching providers, which isn't always possible. Lucas: A few things. One, call your provider and ask about retention offers. It's annoying, but it often works. Two, check if there's a municipal broadband option in your area — those tend to be cheaper and more price-stable. Three, consider buying your own modem and router instead of renting, which can save $10 to $15 a month. Luna: And for those who can, bundling with mobile service sometimes yields a discount. Though you have to watch out for promotional pricing that spikes after a year. Lucas: Exactly. And look, this isn't a crisis — internet bills aren't the biggest driver of inflation by any means. But it's a good reminder that inflation isn't just about gas stations and supermarket shelves. It's in the recurring charges we barely think about, and those add up. Luna: Especially when they're rising at 3 percent while your income might only be going up 4 or 5 percent. That eats into real purchasing power. Lucas: Right. And over the course of a year, an extra $3 or $4 a month on internet, plus similar increments on streaming, insurance, and other services, can total hundreds of dollars. That's the kind of inflation that doesn't make headlines but affects everyone. Luna: So next time you see that CPI number on the news, remember that behind the headline are dozens of categories — and internet access is one that's quietly shifting from deflation to inflation. Lucas: And if you want to keep up with those shifts, we'll be here every day breaking them down. Thanks for listening.