Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Hometown Hotel Rates Are Sticking at Pandemic Highs
Transcript
- Lucas: So I booked a weekend in a mid-sized city last month, and the hotel rate was almost exactly what I paid in 2022. And I thought, wait, the CPI says hotel prices have been cooling for a year. So what's going on? Luna: That's the thing — the national average hides a really uneven story. Big cities are seeing rates come down, but smaller markets are stuck. It's like the opposite of what you'd expect. Lucas: Right. The July CPI report, out a few weeks ago, showed lodging away from home up just 1.9 percent year-over-year. That's way down from the double-digit spikes we saw in 2022. But if you drill into regional data, some of these secondary markets are still up 15, 20 percent from 2019. Luna: So why are my weekend trips to smaller cities still so pricey? Lucas: Part of it is that demand has permanently shifted. Remote work means more people are traveling during the week, staying longer, and mixing business with leisure. A lot of these mid-sized towns — think Asheville, Boise, Bentonville — have become 'work from anywhere' hubs. And hotel owners have figured out they can charge more because occupancy is structurally higher. Luna: So it's not just a post-pandemic bounce — it's a new demand curve. But what about supply? Aren't there more hotels being built? Lucas: Construction has picked up, but it's slow. And here's the kicker: in some cities, hotels are being converted into apartments because housing prices are so high. That actually shrinks the hotel supply. So you've got demand up and supply flat to down in a lot of these markets. Luna: That's a double whammy. And it's not just demand — costs are sticky too. Housekeeping wages have gone up a lot, and that's a huge part of a hotel's operating budget. Lucas: Exactly. The labor market for hotel workers is still tight. Wages for housekeepers and front desk staff are up maybe 20 percent since 2019, and that's not coming back down. Hotel owners have to pass that on. And they can, because demand is strong enough. Luna: So it's a perfect storm: higher costs, higher demand, and not enough rooms. But the CPI is still cooling overall. How does that square with what we're seeing? Lucas: Because the CPI is an average. It's like the S&P 500 — a few big winners can mask a lot of losers. In this case, big-city hotels are the ones dragging the average down. New York, San Francisco, those markets still have a lot of empty rooms, especially on weekdays, so they're discounting. But if you're traveling to a smaller city, you're feeling the real inflation that's still baked in. Luna: And that's what listeners care about — they're not booking a hotel in Manhattan every week. They're going to see family or taking a long weekend in a smaller town. So this isn't just a niche thing. It's affecting people's actual budgets. Lucas: Totally. And it's one of those things where the headline number doesn't match your lived experience. We've done episodes on why your coffee or your car insurance feels expensive despite cooling CPI. This is the same kind of disconnect, but for travel. Luna: Before we keep going — and this is a bit meta, but I think it fits — if you've ever found yourself explaining one of these inflation puzzles to a friend and they look at you like you're a wizard, that's kind of what this show is about. We try to make sense of the economy so it's not just a bunch of numbers. If that's been useful to you, and you want to keep it ad-free, you can support us at buy me a coffee dot com slash fexingo. It's a small way to keep the lights on. Lucas: Yeah, no pressure, but it genuinely helps. We don't have advertisers, we're not selling anything — just a couple of people who like explaining this stuff. Okay, back to hotels. Luna: So, if demand is structurally higher and supply is tight, does that mean rates are never coming down in these smaller markets? Lucas: Not never, but it's going to take a while. A lot depends on how much new supply actually gets built. There's a lag — it takes years to get a hotel financed and constructed. And with interest rates where they are — the Fed funds rate is sitting at 3.63 percent — financing costs are still high. That's a major brake on new construction. Luna: So the Fed's rate policy is indirectly keeping hotel rates high by making it expensive to build new hotels. That's a connection I hadn't made. Lucas: Exactly. And it's not just hotels. The broader cost of capital affects everything from apartment buildings to new restaurants. But in this case, it's keeping supply from expanding just when demand is strong. Luna: But wait — if construction costs are high, wouldn't that also push up rates even if supply did come online? I mean, the cost to build is now way more than it was in 2019. Lucas: Right. Even when new hotels do get built, they're coming in at a higher cost basis, so they have to charge more just to break even. That's why you see a lot of these new properties in smaller cities positioning as 'premium' — they need the revenue per room to justify the construction cost. Luna: So we're locked into a higher price level for a while. It's not that hotels are trying to gouge us — it's that their own costs are structurally higher. Lucas: That's the key takeaway. A lot of what feels like 'inflation' now is really a one-time price reset that isn't going to reverse. The Fed can cool demand by keeping rates high, but it can't undo the fact that building a hotel costs 30 percent more than it did five years ago. Luna: And that's true across the economy. We saw the national debt hit 40 trillion dollars this week — that's a big number that doesn't directly affect hotel prices, but it's a backdrop for the rate environment. Lucas: Yeah, the debt is a longer-term issue, but it's part of why the Treasury is doing these buyback operations — the Treasury secretary said they could be more than 4 billion dollars. That's about managing the government's borrowing costs, which trickles into everything. Luna: So when you're paying 180 bucks for a room in a place that used to cost 120, you're not just paying for the bed — you're paying for the whole cost structure of the economy. Lucas: Exactly. And that's the kind of thing we like to pull apart. So the next time you book a hotel in a smaller city, you'll know it's not just supply and demand — it's labor, it's capital, it's the Fed, it's even the national debt. It's all connected. Luna: I know we've covered a lot of these inflation puzzles, but this one feels especially personal. Everyone travels. So what's the one thing you'd tell a listener who's planning a trip to a mid-sized city this fall? Lucas: Book early, and don't expect 2019 prices. But also, look at alternatives — maybe a smaller independent hotel or a short-term rental, because the big branded properties are the ones with the most pricing power. And know that this is a structural shift, not a temporary blip. Luna: That's a good practical takeaway. And it's a great example of how the macro economy shows up in your micro decisions. Lucas: Right. Until next time, keep your eyes on the price — but also on what's behind it.