Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / How Import Prices Are Raising Your Grocery Bill
Transcript
- Lucas: Import prices posted a surprise gain last week—costs of goods from China hit their highest level since 2008. And this is happening while wholesale prices actually dropped in June, down three-tenths of a percent on a big decline in gasoline. Luna: So the stuff we buy from overseas is getting more expensive, but the stuff businesses sell to each other is getting cheaper. That feels like a contradiction. Lucas: It is, until you separate goods from services—and look at where the price pressure is actually building. The import price index for Chinese goods has been creeping up for months. A big part of that is shipping costs. A standard forty-foot container from Shanghai to Los Angeles now costs around eighty-five hundred dollars. That's up from about twenty-five hundred in 2020. Luna: Right, and those costs eventually land on the shelves at Target and Walmart. But the headline CPI has been cooling—the June reading came in at 332.6, down from 333.98. Lucas: Exactly. And that's the disconnect. Core CPI—stripping out food and energy—barely budged. But import prices feed into the goods component of CPI, not services. And goods inflation has been negative for a while, which is why overall CPI looks tame. But now you've got this upstream pressure building. Luna: So the question is: do retailers absorb the higher import costs, or do they pass them on? Because right now, we're seeing the opposite in the wholesale data. The producer price index dropped 0.3 percent in June, mostly because gasoline got cheaper. Lucas: Right, and that's the twist. Wholesale gasoline prices fell sharply, which dragged down the headline PPI. But if you strip out food and energy, the core PPI was actually flat. Meanwhile, import prices rose. So you've got a squeeze: retailers are paying more for imported goods, but they can't raise prices as much because consumers are pushing back. Luna: And that's where the consumer gets caught. Either prices go up, or margins get squeezed—and eventually, something has to give. Lucas: Exactly. And there's a specific example I want to drill into: electronics. A lot of consumer electronics—think laptops, smartphones, smart home devices—are manufactured in China or use Chinese components. The tariffs from the past few years are still in place, and shipping costs are elevated. But the CPI for electronics has been falling, because demand softened after the pandemic boom. Luna: So retailers are absorbing the higher input costs to keep prices low and move inventory. That's not sustainable forever. Lucas: No, it's not. And we're starting to see signs that it's ending. I was looking at data from the Bureau of Labor Statistics, and the price index for imported consumer goods excluding automobiles rose 0.4 percent in June. That's the third consecutive monthly increase. Luna: So that's the leading edge. If that continues, we could see goods inflation re-emerge, even as services inflation slows. That would be a real complication for the Fed. Lucas: It would. Right now the Fed is focused on services inflation—things like rent, medical care, insurance. Those are stickier. But if goods prices start rising again, you get a two-front problem. And the Fed's tools are blunt: they raise rates, but that doesn't fix a shipping container shortage. Luna: Let's talk about what's actually driving those shipping costs. Is it just post-pandemic demand? Or is there something structural? Lucas: A bit of both. The pandemic created a huge surge in demand for goods, and shipping capacity hasn't fully caught up. But there's also the geopolitical angle. Renewed tensions in the Hormuz Strait—that's a major shipping lane for oil and containers—have pushed up insurance and fuel costs for carriers. That headline about 'renewed Hormuz hostilities' from last week is directly relevant. Luna: So a geopolitical shock in the Middle East raises the price of your next laptop. That's the kind of connection most people don't make. Lucas: Right. And it's not just electronics. Grocery stores import a lot of produce and packaged goods. Think about olive oil, coffee, spices—many of those come from regions affected by shipping disruptions. The import price index for foods, feeds, and beverages rose 0.6 percent in June. Luna: And that's going to show up on your grocery bill, even if overall CPI says inflation is cooling. The average person doesn't buy a basket of all goods—they buy groceries and gas and maybe a new phone. So their personal inflation rate may be higher than the headline. Lucas: We've done episodes on that gap before—episode 116, I think. But this is a new dimension. The gap is widening again because of these import cost pressures. And the data is clear: the ten-year breakeven inflation rate, which is a market-based measure of expected inflation, ticked up to 2.24 percent last week. That's still low by historical standards, but it's moving in the wrong direction for the Fed. Luna: So markets are starting to price in a bit more inflation risk. And we're sitting here in mid-July 2026, with the Fed funds rate at 3.63 percent—unchanged for weeks. The Fed is in a waiting pattern, but this import price data might push them to hold longer. Lucas: Yeah, the Fed has been on hold since the spring. They cut rates earlier this year when inflation was clearly cooling, but now they're waiting to see if the progress stalls. And import prices are exactly the kind of data point that makes them cautious. Luna: Let's bring it back to something concrete for the listener. What should someone watching their budget do with this information? Lucas: I think the key takeaway is that prices for imported goods—especially electronics and certain groceries—may have bottomed. If you've been waiting for a big drop in prices, you might not see it. The window of deflation in goods is probably closing. That doesn't mean prices will spike, but the downward trend is ending. Luna: So if you need a new laptop or a smartphone, buying sooner rather than later might make sense. Because the import cost pressure is real, and retailers can only hold the line for so long. Lucas: Exactly. And the same goes for big-ticket imported items like furniture or appliances. The shipping cost increases are still working their way through the supply chain. It takes a few months for a container rate to show up on a shelf price. Luna: And on the flip side, gasoline prices are falling. The wholesale drop in June suggests retail prices could come down further at the pump. So there's a silver lining for drivers. Lucas: Right. And that's what makes this moment so interesting. You've got diverging trends—import costs up, gasoline down, services inflation sticky. The overall picture is muddled. But if you look closely, you can see the next wave forming. Luna: And that's exactly why we do this show. We try to connect those dots. And if walking through the economy with us has made something click for you, it genuinely helps if you support the show. Lucas: Yeah, a couple of dollars a month is what keeps these episodes ad-free and independent. You can do that at buy me a coffee dot com slash fexingo. No pressure, but it makes a real difference. Luna: Alright, back to the data. Lucas, you mentioned the wholesale gasoline drop. How much of that is actually reaching consumers? Lucas: Good question. The wholesale price of gasoline fell about 5 percent in June, according to the PPI report. But retail gasoline prices—what you see at the station—have only come down about 2 percent so far. There's usually a lag of a few weeks. So we could see more relief in July. Luna: And that's something people will feel directly. Gasoline is one of those prices that's very visible. If it goes down, it can improve consumer sentiment even if other prices are still high. Lucas: Absolutely. And that's why the Fed watches it too. Lower gas prices reduce headline inflation mechanically, but they also free up disposable income for other spending. That could support economic growth, which the Fed might actually want to cool. So it's a mixed signal. Luna: So we're in this weird spot where import prices are rising, wholesale prices are falling, and the consumer is caught in the middle. It's a good reminder that inflation isn't one number—it's a collection of stories. Lucas: Yeah, and stories change. A year ago, the story was supply chain disruption pushing prices up. Then it was demand-driven services inflation. Now it's a tug of war between goods and services, with geopolitics throwing in curveballs. The best thing a listener can do is stay curious and keep asking: why is this price moving? Luna: And we'll keep trying to answer that question each week. Thanks for being here.