Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Job Openings Are Surging While Inflation Stays Sticky
Transcript
- Lucas: So, the big number this morning — job openings surged to 7.6 million in April. That's the highest in nearly two years, according to the JOLTS report. And it's a weird moment for that because inflation is still running at 3.3 percent on core PCE, which is the Fed's preferred gauge. Luna: Right — and the common narrative has been that the labor market is cooling, which would give the Fed room to cut rates. But this says the opposite. What's going on? Lucas: Yeah, exactly. A lot of people expected openings to drift lower, maybe toward 7 million or below. Instead, we got this jump. And the thing is, if you look under the hood, it's not evenly spread. It's concentrated in a few sectors — professional and business services, leisure and hospitality, and health care. Those are all service sectors where wages are sticky and demand is still strong. Luna: And that's important for inflation because service prices are the hardest to bring down once they get embedded. The Fed knows this. Lucas: Precisely. Goods inflation has actually been fairly tame — even declining in some categories. But services inflation, which is about two-thirds of the CPI basket, remains elevated. And a hot job market keeps upward pressure on wages, which feeds directly into service prices like rent, insurance, and medical care. Lucas: You know, Luna, if walking through the economy with us has made something click, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. It's the smallest possible ask, and it genuinely keeps this show ad-free and independent. Luna: Yeah, we don't have sponsors or ad reads, so listener support is what makes this possible. No pressure ever, but if it's worth it to you, that's the place. Lucas: So, back to the job openings. The Fed has been watching the ratio of job openings to unemployed workers. That ratio had been falling from its peak of two-to-one down to about one-point-two-to-one. But with this April surge, it might tick back up. And that's a signal that the labor market is still too tight for the Fed to feel comfortable cutting rates. Luna: Right. Because if there are more openings than workers, companies have to compete for talent by raising wages. And higher wages mean higher costs, which get passed on as higher prices. Lucas: Exactly. And we saw that in the employment cost index last quarter — wages and salaries rose 0.9 percent quarter-over-quarter, which is still above pre-pandemic trends. So the JOLTS data reinforces that the wage pressure isn't going away. Luna: But the Fed's been saying they want to see more progress on inflation before cutting. Does this push the first rate cut further out? Maybe into 2027? Lucas: That's the market's read right now. Futures are pricing in maybe one cut by December, possibly a second if the data softens. But a number like this makes it harder for the Fed to justify moving early. The effective federal funds rate is at 3.63 percent, and it's been basically flat for months. Luna: So how does this connect to what people actually feel in their wallets? I mean, job openings are an abstract number. But the consequence is that their rent stays high, their car insurance goes up, their streaming bills don't come down. Lucas: Right. And that's the direct line. Take rent — it's the single biggest component in CPI, about a third of the index. Rent inflation has been cooling, but it's still running at around 4.5 percent year-over-year. If the job market stays hot, landlords have pricing power because tenants have jobs and can absorb increases. Luna: And insurance is another one. We've talked about how insurance premiums have become a real inflation signal. With more people employed and driving, claim costs go up, and premiums follow. Lucas: Yeah, auto insurance premiums are up something like 20 percent over the past two years. That's not directly tied to job openings, but a tight labor market means repair shops and medical services cost more, which feeds into claims, which feeds into premiums. Luna: So the JOLTS number is really a leading indicator for service inflation. If openings stay above 7.5 million, we're probably not going to see core inflation drop below 3 percent anytime soon. Lucas: I think that's the right framework. And there's a historical pattern here. In past cycles, the Fed has often cut rates too early when the labor market looked like it was softening, only to see inflation re-accelerate. They're trying to avoid that mistake. Chair Powell has been pretty clear that they want to see a sustained trend, not just one month of good data. Luna: But there's also a risk that they wait too long and the economy tips into recession. Job openings are high now, but if the Fed keeps rates high, hiring could freeze up. Lucas: Right, that's the classic tightrope. And we've seen some softening in other indicators — the quits rate has fallen back to pre-pandemic levels, which suggests workers are less confident about jumping to a new job. That's a sign that the labor market is not as hot as the openings number alone suggests. Luna: So maybe the openings number is a bit misleading? Because it's a stock, not a flow. It tells you how many positions are unfilled, but not how many people are actually getting hired. Lucas: Exactly. The hires rate has actually been fairly stable, around 3.6 percent of total employment. So companies are posting jobs, but they're not necessarily filling them faster. That could mean they're being picky, or that there's a skills mismatch. Either way, it's not the same as a hiring boom. Luna: But for inflation, the important thing is that the wage pressure remains. Even if hiring isn't accelerating, the competition for workers keeps wages elevated. Lucas: Yeah. The Atlanta Fed's wage tracker is still running at about 5 percent year-over-year. That's roughly double the pre-pandemic pace. And until that comes down, services inflation will be sticky. Luna: So what are you watching next? What's the key data point that could change the picture? Lucas: I'd say the next CPI report, due out next week. We'll see if the April data showed any deceleration in services excluding shelter — that's the category the Fed is most focused on. Also, the JOLTS data for May will come out in early July, and that will tell us if April was a blip or a trend. Luna: And if job openings stay high, what does that mean for the average person listening? Should they expect inflation to stay elevated for the rest of the year? Lucas: I think that's the base case. Core inflation is likely to hover around 3 percent for the next few months. The days of 2 percent inflation are probably a year or more away. But the good news is, if you have a job, your income is likely keeping pace — wages are growing at about 4 to 5 percent. The pain is really for people on fixed incomes or in sectors where wages aren't keeping up. Luna: So it's a K-shaped recovery, or K-shaped inflation, really. Some people are keeping up, some are falling behind. Lucas: Exactly. And that's the part that doesn't show up in a single number like JOLTS or CPI. It's about distribution. The Fed's tools are blunt — they can only raise or lower rates for everyone. They can't target relief to the households that need it most. Luna: Alright, so to sum up: 7.6 million job openings is a signal that the labor market is still tight, which means wage pressure persists, which means services inflation stays elevated, which means the Fed stays on hold. And that's the reality for the rest of 2026. Lucas: That's the chain. And it's a good reminder that inflation isn't just about oil prices or supply chains anymore. It's about what happens when people have jobs and spend money. That's the new normal. Luna: And we'll keep watching the data. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.