Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / The Hidden Math Behind Your Grocery Bill
Transcript
- Lucas: Let’s look at the number that keeps me up at night, not because it’s scary, but because it’s so quietly devastating. The September Consumer Price Index came in at 336.3, which sounds abstract until you realize that represents a cumulative erosion of value we’ve been ignoring for years. We talk about the annual percentage change, but the real story is in the base effect and the way prices refuse to come down even when demand cools. Luna: Right, and it’s the asymmetry that gets me. Prices go up fast, but they sit there like concrete once they arrive. Did you see the breakdown on food versus energy? Lucas: I did. And that’s where I want to take us today, because most listeners are tuning out after hearing the headline number. But the real friction is in the services component, specifically how 'sticky' pricing is creating a new normal for household budgets. It’s not just that things cost more; it’s that the mechanism of price discovery has broken down. Luna: So you’re saying the market isn’t clearing prices anymore? That’s a strong claim. Lucas: Not entirely broken, but certainly distorted. Look at the Core PCE price index, which held at 130.9 in September. The Fed watches that closely, but everyday consumers don’t care about Core PCE. They care about the fact that their rent, their insurance, and their groceries have become structurally higher. The 0.7 percent monthly rise in CPI might seem small, but it’s compounded by wages that haven’t moved in lockstep with these specific categories. Luna: It feels less like inflation and more like a permanent tax on consumption. Have you looked at the job openings data from September? It was surprisingly strong. Lucas: Yes, the JOLTS report showed a big gain in job openings, which usually signals labor market strength. But here’s the catch: strength in hiring doesn’t automatically translate to purchasing power if the cost of living rises faster than nominal wages. We’re seeing a divergence where employers can hire, but employees are trading hours for less real value. Luna: That’s the invisible tax I mentioned earlier. If my paycheck is bigger but my buying power is smaller, am I actually better off? Lucas: You’re worse off, because the baseline expectation has shifted. Let’s pause for a second here. If walking through the economy with us has made something click, or if you find this kind of deep-dive analysis useful for your own decision-making, the way these shows stay ad-free is listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. Just a quick note to keep the signal clean. Luna: Thanks for keeping the noise down, Lucas. It really helps when we can focus on the actual numbers without interruption. Lucas: Back to the sticky price phenomenon. Why do companies keep raising prices even when the Fed hikes rates? It’s because of menu costs and customer expectations. Once a price goes up, consumers accept it as the new norm. Removing it would trigger backlash, so firms hold the line. Luna: But doesn’t that create inefficiency? If prices aren’t adjusting to supply and demand, aren’t we just allocating resources poorly? Lucas: Exactly. We’re seeing misallocation. Resources flow into sectors with pricing power rather than productivity. Take the AI infrastructure boom. While tech stocks fluctuate, the underlying cost of energy and computing power is being baked into consumer goods indirectly. It’s a slow bleed, not a sudden shock. Luna: So the VIX dropping last week doesn’t tell the whole story? Market calm can mask underlying price rigidity. Lucas: Precisely. The S&P 500 is down 2.3 percent over the last five days, and the Nasdaq is down 4.4 percent. Investors are nervous about growth, but that volatility is different from the chronic anxiety of inflation. One is a portfolio problem; the other is a survival problem for the average household. Luna: I think people confuse the two. They see the stock market dip and think everything is fine, while their credit card interest climbs. Lucas: That’s the disconnect. The Fed Funds effective rate is currently 3.88 percent, up slightly from 3.75 in October. This is meant to cool demand, but it also increases the cost of borrowing for businesses who then pass those costs on. It’s a double-edged sword. Luna: And the breakeven inflation rate on the ten-year Treasury dropped to 2.29 percent yesterday. Does that mean markets think inflation is tamed? Lucas: Markets are pricing in a soft landing, but soft landings are often messy. A 2.29 percent breakeven is close to the Fed’s target, but it ignores the lag effect. Monetary policy takes twelve to eighteen months to fully hit the real economy. We’re still feeling the tail winds of previous decisions. Luna: So we’re waiting for the hammer to drop, but the hammer is already here, just moving slowly. Lucas: A great metaphor. Think about your local grocery store. The price of milk hasn’t gone up much this month, but it’s still 20 percent higher than it was three years ago. That’s the cumulative effect. The monthly data point is a snapshot; the yearly trend is the movie. Luna: I notice that with services too. My car insurance went up again, even though driving records are stable. Is that part of the sticky trap? Lucas: Absolutely. Insurance is a classic example of backward-looking pricing. Premiums are set based on recent claims data, which includes past inflation. So even if current inflation slows, premiums stay high until the cycle turns. It’s a lagging indicator that hurts consumers immediately. Luna: That’s frustrating. It feels like we’re paying for history, not present reality. Lucas: We are. And this brings us to the housing shockwave. Rent inflation is finally showing signs of cooling, but it’s starting from such a high base that it remains a drag on discretionary income. The Euro zone economy slowed to 0.4 percent growth in Q3, with France contracting. Global trends matter here. Luna: Global supply chains are still fractured, right? Even if we fix domestic issues, external shocks keep pushing prices up. Lucas: They are. Australia just hiked rates to an eighteen-year high to fight inflation, and South Korea is pouring record budgets into sovereign AI models. These are massive capital expenditures that drive up global demand for materials and labor. It’s not just a US problem; it’s a systemic resource constraint. Luna: So the cost of living crisis is actually a cost of transition crisis? We’re transitioning to a new economic structure, and it’s expensive. Lucas: That’s a sharp way to put it. We’re transitioning from cheap energy and abundant liquidity to a world of green mandates, ai driven efficiency, and geopolitical fragmentation. Each step costs money. The question is whether wages will catch up to that new reality. Luna: I doubt it quickly. Wages are sticky too. Employers are hesitant to raise them unless forced, and consumers are hesitant to ask unless desperate. Lucas: Which creates a stalemate. A wage-price spiral requires momentum. Right now, we have inertia. Prices stay high, wages stay flat, and everyone adjusts their expectations downward. It’s a deflationary mindset in a high-inflation environment. Luna: Psychological inflation. If I expect prices to rise, I spend now, which drives prices up further. It becomes self-fulfilling. Lucas: Exactly. And that’s why central banks are so focused on anchoring expectations. The ECB kept its key interest rate on hold at 2.5 percent recently. They’re playing it safe, trying to guide expectations without crushing growth. Luna: Safe is good, but is it enough? When my grocery bill feels heavier, I don’t need safe. I need relief. Lucas: Relief comes from productivity gains, not just rate cuts. If AI and automation increase output per worker, the cost of goods falls. But that’s a long-term play. In the short term, we’re stuck with the current price structure. Luna: So the advice for listeners should be to plan for the long haul? Not panic over monthly data? Lucas: Yes. Focus on your personal balance sheet. Lock in fixed rates where possible, invest in skills that command premium wages, and diversify your exposure. Don’t try to time the CPI release. It’s a lagging indicator anyway. Luna: Practical advice. Ignore the noise, manage your cash flow, and wait for the productivity wave. Lucas: Wait for the wave, but build a boat. Because when it comes, only those prepared will ride it. The economy of late 2026 rewards resilience, not speculation. Luna: Resilience over speculation. I like that. It’s a reminder that our financial health is built day by day, not by guessing the next Fed move. Lucas: Exactly. And that’s the real lesson behind the CPI data. It’s not about the number 336.3. It’s about what that number says about our collective ability to adapt. Are we adapting, or are we just enduring? Luna: Enduring for now, but hopefully adapting soon. Thanks for breaking down the math, Lucas. Lucas: Anytime. Keep watching the fundamentals, and we’ll see you next time.