Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / How Inflation Is Changing What You Actually Pay at the Register
Transcript
- Lucas: So we've got a new consumer sentiment reading out on Friday — May twenty-second — and it hit a fresh record low. That's the University of Michigan survey, and it's now the worst number we've seen since they started tracking it back in the nineteen fifties. Luna: Record low in a survey that goes back seventy-plus years? That's pretty stark. And it comes even as headline CPI has been drifting lower — April came in at three hundred thirty-two point four, up from three hundred thirty point two nine the month before, but the year-over-year rate is actually down from its peak. Lucas: Right. And that's the big disconnect the show keeps coming back to. The official inflation rate is moderating — core PCE, the Fed's preferred gauge, is at one hundred twenty-nine point three — but people are telling pollsters their personal finances are worse than ever. So what's actually happening at the register? Luna: Let's start with something tangible. I was looking at egg prices — which, you know, became a meme a couple years ago — but they're still elevated. Not the crazy spikes we saw in twenty twenty-two, but they haven't come back down to pre-pandemic levels either. Lucas: And that's the pattern across a lot of categories. Economists call it 'downward stickiness' — prices that shot up during the supply-chain era and then just stayed there. They didn't reverse when the bottlenecks cleared. So the level is permanently higher, even if the rate of increase has slowed. Luna: That's exactly what frustrates people. If your wage went up five percent but your rent went up twenty percent over three years, you're still behind. The rate might be cooling, but the cumulative effect is real. Lucas: We deliberately don't run ads on these episodes. If walking through the economy with us has made something click, the link to support that choice is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a simple way to keep this ad-free. We appreciate anyone who chips in. Lucas: Okay, so let's break down what's still climbing. Rent and owners' equivalent rent — that's the biggest weight in CPI, about a third of the index. And it's still rising at about four and a half percent year-over-year. New lease data from Apartment List shows rents in Sun Belt cities are actually accelerating again. Luna: We talked about that in episode four, but it's worth revisiting because the driver has shifted. It's not just about migration anymore. It's about insurance costs for landlords — property insurance in Florida and Texas has gone up fifty to a hundred percent in some cases. That gets passed straight to tenants. Lucas: Car insurance is another one. The CPI category for motor vehicle insurance is up nearly twenty percent year-over-year. That's not a supply chain issue — that's repair costs getting more expensive because cars are more computerized, plus more severe weather claims, plus medical costs in accident claims. Luna: And those are services, not goods. That's the key shift from twenty twenty-one. Goods inflation has largely normalized — used car prices are actually dipping again, which we covered last episode — but services inflation is stickier because it's tied to labor costs and insurance cycles. Luna: And the bond market seems to agree. The ten-year breakeven inflation rate — that's the market's expectation for average inflation over the next decade — is at two point four percent. That's actually up a tick from two point three nine last week. So bond traders aren't convinced inflation is vanquished either. Lucas: Let's bring this back to that consumer sentiment number. Why do people feel so bad? It's not just that prices are high — it's that wages haven't caught up fast enough for the bottom sixty percent. Real average hourly earnings are up maybe one percent over the last year, but if you're a renter paying higher rent and higher insurance, your disposable income is shrinking. Luna: And there's a psychological component too. When prices go up quickly, people adapt by buying cheaper brands or cutting back. But when they stay high, that adaptation becomes permanent. You're not going back to the old normal. That sense of loss — of a standard of living that you expected to have — is real. Lucas: So what's the outlook from here? The Fed's projection is for two more cuts this year, starting maybe in September. But that depends on services inflation coming down. If it doesn't, they'll hold. And if the consumer sentiment stays this low, that could actually help by slowing demand — but it also risks a recession. Luna: It's a fine line. The economy is still growing — GDP was okay in Q1 — but the consumer is the engine. If people stop spending because they feel pinched, that's how a slowdown starts. Lucas: We'll be watching the May CPI release on June tenth. That'll give us the first look at whether services inflation is finally bending. Until then, the disconnect between the data and how people feel is likely to persist. Luna: And if you want to dig into the numbers yourself, the Bureau of Labor Statistics website has the full CPI table. It's surprisingly readable once you get past the jargon. Lucas: Always. We'll be back soon with another angle on what your money is actually doing.