Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Medical Bills Keep Rising Despite Falling CPI
Transcript
- Lucas: So here we are, July 27, 2026, and the latest CPI reading shows headline inflation down again — June came in at 332.6, off from 333.98 in May. That's a meaningful month-over-month decline. Luna: Right, but I've been looking at my own expenses and I don't see it. My health insurance premium just went up, my doctor co-pay is higher, and I just got the tuition bill for my kid's fall semester — not lower. Lucas: Exactly. And that's the disconnect we want to talk about today. The headline CPI is being pulled down by goods — cars, furniture, electronics — all falling. But services, especially medical care and education, are still climbing. Luna: And that matters because those are the things we can't avoid spending on. You can delay buying a new TV. You can't delay a doctor's visit. Lucas: Right. So let's look at the data that the Fed cares about most: core PCE. That's the personal consumption expenditures index excluding food and energy. For May, it rose to 130.1, up from 129.67. That's a 0.33% month-over-month increase, which annualizes to about 4 percent. Luna: So while CPI is falling, the Fed's preferred gauge is still rising. That's got to complicate their decision on rate cuts. Lucas: It does. And the bond market sees it. The 10-year breakeven inflation rate, which is a market-based expectation of future inflation, is at 2.26 percent, down a bit from 2.28. So bonds are pricing in lower inflation ahead, but the actual core PCE is running hotter. Luna: So who's right? The market or the measured data? Lucas: That's the million-dollar question. But I think the key is in the composition. Services like medical care and education have different pricing dynamics. They're less sensitive to global supply chains and more driven by labor costs and regulation. Luna: And rents — we've talked about that before. Rents have softened, but not everywhere. But medical services specifically: what's driving the increase? Lucas: A few things. First, labor costs. Healthcare is very labor-intensive — nurses, technicians, administrative staff — and wages have been rising. Second, hospital consolidation gives providers more pricing power. Third, insurance premiums are tied to past costs, so there's a lag. Luna: Speaking of insurance — my auto insurance went up too, but we've covered that. It feels like every service category is sticky. Lucas: Yeah. And it's easy to get lost in these numbers. That's actually part of why we do this show — to cut through the noise and give you a clear picture. And it's possible because of listeners like you who support us directly. A small group chips in monthly through buy me a coffee dot com slash fexingo, and that keeps this ad-free and independent. Luna: It's true. And it's not a big ask — just that if you find value in these conversations, you can contribute. No pressure, but it does make a difference. Lucas: Exactly. Now back to the medical services puzzle: tuition is another big one. College costs have been rising faster than inflation for decades, and this year is no different. According to recent data, tuition and fees are up about 3.5 percent year-over-year. Luna: And that's not even counting room and board. So for families, the real cost of living is going up despite what the headline CPI says. Lucas: Right. And that creates a disconnect in how people perceive the economy. The Fed might hold off on rate cuts because core PCE is still elevated, but consumers feel squeezed. That's a tough spot. Luna: So what's the takeaway? Should we expect rate cuts later this year, or is the Fed stuck? Lucas: I think they're stuck unless we see core PCE start to decline. And that might not happen until medical cost growth slows, which could take a while given labor market tightness and aging demographics. Luna: So the bond market might be too optimistic with that 2.26 percent breakeven. Lucas: Possibly. Or they're betting that goods deflation will pull overall inflation down despite sticky services. But that seems risky because services are two-thirds of the economy. Luna: Well, I'm going to keep an eye on my medical bills. Thanks for breaking this down. Lucas: Sure thing. And if you want to dive deeper into any specific service category, let us know. That's what we're here for.