Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Rent Is Falling While Hotel Prices Keep Climbing
Transcript
- Lucas: So, Luna, have you booked a hotel recently? Because the price you're seeing at checkout might be leaving you a little stunned. Luna: Actually, yes. I was looking at a weekend in September, and the rates were noticeably higher than I expected. But my rent, on the other hand, just got renewed at a lower price. Lucas: That's exactly the split we're talking about today. The latest CPI data shows that shelter costs — specifically rents — are finally cooling off. In June, the overall CPI fell, and rents are a big part of that. But hotel prices, which are in the same CPI basket under 'lodging away from home,' are still climbing. Luna: It feels like the same trend we've seen in other episodes — goods prices falling while services stay stubbornly high. But why are these two lodging categories moving in such opposite directions? Lucas: Right, and that's the question. Let's start with the supply side. For residential rents, a ton of new apartment buildings have come online over the past couple of years. Construction boomed during the pandemic, and now we're seeing the completion wave. In places like Austin and Phoenix, vacancy rates are up, and landlords are having to offer concessions just to keep tenants. Luna: So more supply is pushing rents down. But hotels aren't exactly building a ton of new rooms, are they? Lucas: Exactly. Hotel construction has been pretty sluggish since the pandemic. A lot of projects were shelved, and financing costs are higher now. So you have limited supply growth, and at the same time, demand for travel is still really strong. People are prioritizing experiences — they're spending on trips, not on bigger apartments. Luna: And I've heard that business travel is back too, which probably doesn't help hotel prices. Lucas: It is, and that's been a slow recovery, but it's adding to the demand picture. Also, there's this interesting dynamic where remote work has changed how people travel. You have 'bleisure' trips — people extending business trips or working from a hotel for a week. That's keeping occupancy rates high even outside of peak seasons. Luna: So the same remote work trend that's suppressing demand for office space and maybe even apartments is fueling hotel stays. Lucas: Exactly. And there's another layer: the CPI measures rents differently than it measures hotel prices. Rents are typically measured over the life of a lease, so they lag the actual market. Hotels are spot prices — you're seeing what people are paying right now. So the CPI rent number might be catching up to a slowdown that's already happened, while hotel prices are reflecting current demand. Luna: That lag makes it hard to see the real-time housing market in CPI. But for hotels, we're getting the live picture. Lucas: Right. And that's why we have to look at other data too, like the PCE index, which is the Fed's preferred inflation gauge. It also shows a similar divergence in lodging categories, but it weights things a bit differently. The bottom line is that the overall inflation picture is cooling, but it's uneven. Luna: So if I'm a renter, I might be feeling a little relief. But if I'm planning a vacation, I'm feeling the pinch. Lucas: And that's exactly the kind of split that makes inflation such a tricky thing to communicate. The average consumer doesn't experience inflation as one number — they experience it through their rent, their grocery bill, their plane tickets, their hotel stays. And those are all moving in very different directions. Luna: So what does this mean for the Fed? They're looking at this data, and they're trying to decide what to do with interest rates. Does this divergence complicate things? Lucas: It does. The Fed's mandate is price stability and maximum employment, but they have to look at the whole basket. If rents are falling but hotels are rising, that's not a clean signal. The recent minutes from the FOMC show there's a real debate — some members see the cooling in goods and rents as evidence that inflation is under control, while others point to services like hotels and medical care as proof that there's still work to do. Luna: And that's why we saw the Fed hold rates steady at the last meeting. They're waiting for more clarity. Lucas: Exactly. The effective fed funds rate is still sitting at three point six three percent, and they're not moving until they see a consistent trend. The bond market seems to agree — the ten-year breakeven inflation rate is around two point two eight percent, which is close to their target. So the market is betting that inflation will continue to cool, but that doesn't mean it's a smooth ride. Luna: Let's talk about that for a second. The breakeven rate is based on Treasury inflation-protected securities. And it's been pretty stable. But the actual CPI and PCE are falling at different speeds. Core PCE actually ticked up slightly in June. Lucas: That's a sharp observation. Core PCE went from a hundred thirty point zero nine to a hundred thirty point three. It's a tiny move, but it's the wrong direction if you're hoping for a quick cut. And core CPI, while down, is still at three point three percent year-over-year. So the underlying inflationary pressures are still there, especially in services. Luna: So when we look at hotels specifically, that's a service that's still hot. And rents, which are also a service, are cooling. What explains that difference? Lucas: A lot of it comes down to the structure of the markets. Residential rents are dominated by large property managers with long-term leases. They adjust prices slowly. Hotels are dynamic — they use revenue management software that changes prices daily based on demand. So hotels react much faster to shifts in the economy. Luna: And that's why we see hotel prices spiking during events or holidays, while rents just sort of trend. Lucas: Right. And there's also a difference in what's driving demand. Rents are tied to where people live and work. Hotels are tied to travel — both business and leisure. And right now, people are traveling, even as they're being more careful about their long-term housing costs. Luna: So we're seeing the 'experience economy' continue to boom, even as the broader economy slows. That's interesting. Lucas: It is, and it's a theme that shows up in a lot of other categories too. Think about concerts, restaurants, travel — those are all still strong. But durable goods, like furniture and appliances, are seeing price declines. Consumers are being selective about what they splurge on. Luna: And that's a big shift from the pandemic, when everyone was buying home office equipment and upgrading their living spaces. Lucas: Exactly. The pendulum swung back. Now people want to get out. And that's been a boon for the hospitality industry, but it's also a reason why hotel prices are still climbing even as overall inflation cools. Luna: So if I'm an investor, does this mean I should be looking at hotel REITs over residential ones? Lucas: Well, it's not that simple. Hotel REITs can be volatile, and they're sensitive to economic cycles. Residential REITs might offer more stability. But the current data does suggest that the hospitality sector has momentum. That said, we're not in the business of picking stocks — we just want to understand the economic forces at play. Luna: And understanding those forces helps you make better decisions, whether you're renting, traveling, or investing. Lucas: That's the goal. And, you know, speaking of understanding the forces — this is a good moment to mention something about how this show works. We don't run ads, and that's a deliberate choice. The way we keep this going is through a small group of listeners who chip in a few bucks a month. It's literally what funds all these episodes. Luna: And we're grateful for that. It's not a huge number, but it's enough to keep the lights on and the microphones recording. Lucas: If you've gotten something out of our breakdowns, and you want to be part of that support, you can find us at buy me a coffee dot com slash fexingo. That's it. No pressure, no perks, just knowing you're keeping this ad-free. Luna: And we really do appreciate every single one of you who's already doing that. It makes a bigger difference than you'd think. Lucas: Alright, back to the numbers. So we've talked about the rent-hotel split. But there's another angle worth looking at: how this affects the Fed's policy path. With the economy slowing to one point five percent growth in the second quarter, and core inflation still above target, they're in a tough spot. Luna: And the bond market is basically saying they'll get it done eventually, but it's not going to be a quick move. Lucas: Right. The market is pricing in a gradual easing, not a dramatic cut. And that's probably the right read. The Fed wants to see more consistent progress on services inflation, and hotels are one of those services that keep proving resistant. Luna: So, in a way, the next time you book a hotel and it's pricey, you can think of it as a small data point for the Fed. Lucas: Ha, that's one way to look at it. But the bigger takeaway is that inflation isn't a monolith. It's a mosaic of different markets, and they're all telling different stories. The rent story is one of supply catching up. The hotel story is one of sustained demand. And that's why we have to look beyond the headline CPI number to understand what's really happening. Luna: And that's what we're here for. Thanks for joining us, and we'll see you next time.