Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / Inflation and Your Paycheck How the CPI Shift Hits Home
Transcript
- Lucas: So, Luna, the headline CPI number for June just came in at 332.6, down from 333.98 the month before. That's a nice little drop, and it's got some people talking about the Fed maybe cutting rates later this year. Luna: I saw that. But core CPI barely moved, right? It's still around 336. So what's actually going on? Lucas: That's exactly the question. The headline number is what makes the news, but core inflation — which strips out food and energy — is what the Fed watches more closely. And that number is sticky. It's basically flat from May to June. So the drop we're seeing is mostly from cheaper gas and maybe some food prices easing. Luna: Right, so the stuff we buy every week isn't necessarily getting cheaper. My grocery bill hasn't noticed any CPI drop. Lucas: And that's the real issue for your paycheck. The national average CPI is a blend, but you live in your own personal inflation rate. If you're spending more on rent, healthcare, and services — which are all going up — your experience is closer to core inflation than headline. Lucas: So when your 3 percent raise comes through, and headline CPI is running at 2.5, you feel like you're ahead. But if your personal basket is inflating at 4 percent, you're actually losing ground. That gap is what we want to talk about today. Luna: That's a really good way to put it. So how do we figure out our own personal inflation rate? Lucas: You don't need a spreadsheet and a bunch of data. The shortcut is to look at your top three spending categories. For most people, that's housing, transportation, and food. If those are going up faster than the headline number, your personal inflation is higher. Luna: And what's happening with those categories right now? Housing feels relentless. Lucas: Housing is the big one. Shelter costs have been a major driver of core inflation for a while. Rents and owners' equivalent rent are sticky, they don't drop quickly. Plus, the ten-year Treasury is still around 2.2 percent on the breakeven inflation rate, so the market expects inflation to stay moderate, but not vanish. Luna: So even if the Fed gets to cut, we might not feel it in our rent for a while. Lucas: Exactly. And that's why the Fed is in a tough spot. The July jobs report missed badly, and the odds of a September rate hike have tumbled. But core inflation is still above their target. They're stuck between slowing job growth and inflation that hasn't fully cooled off. Luna: So if they cut rates, could that push inflation back up? Lucas: That's the fear. And that's one of the reasons the market has been so choppy. The S&P 500 is basically flat over the last five days, and the Dow is down half a percent. Investors are trying to price in what the Fed does next, but the data is mixed. Lucas: For your paycheck, the takeaway is this: don't just compare your raise to the headline CPI. Compare it to the categories that matter to you. If your rent went up 6 percent this year, a 3 percent raise is a pay cut in real terms. Luna: That's a hard truth. And I know our listeners are thinking about this because we've gotten a lot of questions about whether to ask for a bigger raise or look for a new job. Lucas: And that's where the practical side comes in. Before you negotiate, do a quick calculation. Look at your actual spending, not the national average. Use a CPI calculator or just track your own expenses for a month. That gives you a number to bring to the table. Luna: So if our listeners do that, they'll have a concrete number to say, 'I need at least this much to keep up.' That's powerful. Lucas: Yeah, and it's a conversation-changer. You're not asking for a raise because you want more, you're asking because your cost of living is higher. That's a different kind of leverage. Luna: I love that. And honestly, if today's episode helps you have that conversation, that's exactly the kind of useful thing we hope to deliver. Lucas: And that's why we keep the show ad-free. So if you found this useful, the best way to support us is to buy us a coffee. It's buy me a coffee dot com slash fexingo. That really helps us keep doing this. Luna: Yeah, every little bit goes to keeping the lights on and the research materials coming. Appreciate it. Lucas: Alright, back to the numbers. Let's talk about one more indicator: core PCE. That's the Fed's preferred inflation gauge, and it actually ticked up slightly in June, to 130.3 from 130.09. That's a small move, but it shows that underlying inflation pressure is still there. Luna: So even though headline CPI is down, the Fed's favorite measure is going the other way. That's messy. Lucas: It is. And it's why I think the Fed is going to be cautious. They might wait until December or even next year before making a move. The market is pricing in some cuts, but the data isn't cooperating. Lucas: For you, that means don't expect a big change in your credit card rates or mortgage rates anytime soon. And if you're in the market for a new job, factor in that your current employer's budget might be tight, but you still have a good story to tell if you have your numbers ready. Luna: One thing I'm curious about, Lucas: how long does it take for a drop in inflation to actually show up in our daily lives? Like, if gas prices fall, we see it at the pump immediately, but what about services? Lucas: Good question. Services are much stickier. Think about a hair salon or a plumber. Their prices are based on what they need to pay their rent and their employees. Those costs are locked in for months. So even if the economy cools, service inflation can stay elevated for a while. Luna: That makes sense. So the headline might drop, but our everyday experience might not change for a while. Lucas: Right. And that's why it's so important to not just rely on the national numbers. Use your own spending as the guide. I've actually started doing this myself — I have a simple spreadsheet where I track my top ten categories each month. It only takes a few minutes, and it tells me exactly what my personal inflation rate is. Luna: That's a great habit. So for our listeners, what's a simple first step they can take this week? Lucas: Pull up your bank and credit card statements for the last three months. Look at your recurring expenses — rent, utilities, subscriptions, groceries, transportation. Note any price increases you see. That's your personal inflation picture. It doesn't have to be perfect, just a rough sense. Luna: And then compare that to your income increase over the past year. If your expenses went up 5 percent but your salary only went up 2 percent, you know you're falling behind. Lucas: Exactly. And that's the number to bring into a salary negotiation or to help you decide if it's time to switch jobs. You're not being greedy, you're being informed. Luna: I think a lot of people feel like they're just treading water, and this gives them a way to actually measure it. Lucas: Yeah. And the best part is, once you have that baseline, it's easy to update every few months. You'll start to notice patterns, like which categories are driving your personal inflation, and you can make smarter decisions about where to cut or what to ask for. Luna: So we've talked about the what and the how. But what about the 'so what' for the broader economy? If the Fed ends up cutting despite sticky core inflation, what could that mean for the average person? Lucas: A rate cut would lower borrowing costs, which could help with mortgages and business loans. But if inflation stays sticky, it also means the Fed might have to reverse course later. So it could be a short-term relief with a longer-term cost. Lucas: For now, the best defense is to keep your own personal inflation rate in mind and adjust your budget and career plans accordingly. The macro picture will sort itself out, but your personal finances are in your control. Luna: That's a good note to end on. Any final thoughts, Lucas? Lucas: Just that the numbers we see in the news don't always reflect our reality. The more you know about your own personal inflation rate, the better you can protect your purchasing power. And if you want help with that, you know where to find us.