Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / The Real Cost of Living Crisis in Late 2026
Transcript
- Lucas: We need to talk about the gap between what the government says inflation is doing and what you actually feel when you walk into a grocery store or pay your electric bill today. The latest September CPI print came in at 336.3, which is up from 334.13 in August, and while that might sound like just another number on a spreadsheet, it tells a story about where the economy is actually stuck. Luna: Right, because the headline number keeps creeping up even as everyone talks about the cooling phase. It feels less like a trend and more like a series of small, persistent hits. Lucas: Exactly. And here is the thing most people miss: the Core CPI, which strips out food and energy, also moved up to 338.9 from 337.76. That is the measure economists really care about because it shows underlying pressure, and it is still rising. So we are not seeing deflation, we are not even seeing zero inflation, we are seeing a stubborn baseline that refuses to drop back to that two percent target. Luna: But isn't the Fed watching the PCE index instead? I saw the Core PCE only ticked up to 130.9, which seems lower than the CPI jump. Lucas: You are spot on to bring that up. The PCE price index did rise to 132.3, but the Core PCE is indeed sitting at 130.9, which is generally softer than the CPI reading. The Federal Reserve uses PCE because it accounts for consumer substitution—like if beef gets expensive, you buy chicken—and the CPI does not. But here is the kicker: the Fed Funds effective rate is currently at 3.75 percent, having crept up slightly from 3.63 percent last month. So we have higher borrowing costs meeting stubbornly sticky prices. Luna: So the cost of money is going up while the cost of living is refusing to go down. That sounds like a recipe for squeezed margins for businesses and squeezed budgets for households. Lucas: It is exactly that squeeze. And if you look at the broader market context, the S&P 500 is down 1.3 percent over the last five days, hovering around 7,580 points. Investors are nervous because they see these economic indicators conflicting with each other. Third-quarter GDP grew at a solid 3.4 percent, which is better than expected, yet inflation accelerated simultaneously. That is a rare combination that usually makes central bankers very uncomfortable. Luna: It’s almost contradictory. You can’t have robust growth and accelerating inflation without some kind of overheating happening somewhere. Where do you think the heat is coming from? Lucas: I think it is coming from the services sector, specifically in areas that are heavily influenced by labor costs and real estate. We talked about rent gaps and wholesale prices recently, but let's drill into something more structural: the wage-price dynamic in late 2026. Wages are still rising, which supports consumer spending, but that same wage growth forces companies to keep prices high to maintain their margins. Luna: So it’s a self-reinforcing loop. Higher wages mean higher prices, which means workers ask for more wages. How fast is that loop moving right now? Lucas: It is moving, but not at the frantic pace we saw during the pandemic recovery. However, with the ten-year breakeven inflation rate sitting at 2.34 percent, markets are pricing in that inflation will stay above the two percent target for quite a while longer. That extra 0.34 percent matters a lot when you are looking at long-term bonds or mortgages. Luna: And speaking of mortgages, housing is usually the biggest component of those indices. Is housing driving this CPI increase, or is it something else? Lucas: Housing is definitely a major driver, but it is not the only one. We are seeing significant increases in insurance premiums and healthcare services, which are becoming harder to predict. Plus, there is a new factor entering the mix that we haven't fully priced in yet: the energy cost associated with AI infrastructure. As data centers expand, they are putting upward pressure on local electricity grids, which eventually filters down into general business costs. Luna: That is an interesting point. I hadn't connected the dots between server farms and my monthly utility bill. Does that make sense for the average listener who is just trying to budget? Lucas: It does, because if your local grid is strained by industrial demand, your residential rates tend to follow. It is a macroeconomic shift that feels micro in your pocketbook. Now, before we dig deeper into how this affects your personal investment strategy, I want to pause for a second. Luna: Okay, what's on your mind? Lucas: If walking through the economy with us has made something click, the way these stays ad-free is listener support — buy me a coffee dot com slash fexingo. That is F. E. X. I. N. G. O. Luna: Yeah, we appreciate every bit of support that keeps this research sharp and independent. It really helps us dig into these details rather than skimming the surface. Lucas: Thanks for that. Let's get back to the numbers. If AI power demands are pushing up energy costs, and wages are keeping service prices elevated, what happens to the consumer who is already stretched thin? Luna: They start cutting back on discretionary spending. I am seeing reports that retail sales are softening in non-essential categories, which suggests consumers are prioritizing necessities like housing and utilities. Lucas: Precisely. And this is where the divergence between the S&P 500 and the Russell 2000 becomes interesting. The small-cap index, the RUT, is actually up 0.9 percent over the last five days, while the tech-heavy NASDAQ is down 2.8 percent. Small businesses are often more exposed to local labor and energy costs, so their resilience suggests that the pain is being felt differently across the market spectrum. Luna: It’s almost like large tech companies are absorbing the shock through scale, while smaller players are passing it directly to consumers or eating it themselves. Which path is more sustainable in this environment? Lucas: Passing it to consumers is only sustainable until they stop buying. Absorbing it erodes margins and kills growth. Right now, many companies seem to be trying both, which leads to that messy, inconsistent data we are seeing in the CPI. The 3.4 percent GDP growth is impressive, but it is built on consumption that is starting to show cracks. Luna: So we are approaching a ceiling. Once that ceiling breaks, does the economy snap back quickly or does it linger in this uncomfortable middle ground? Lucas: It lingers. That is the scary part. We are seeing signs of 'financial repression' in the background, where interest rates are kept just high enough to discourage excessive saving but not high enough to crush the economy completely. This traps capital in low-yield assets and keeps inflation from falling further because nobody wants to move money into safer, lower-return instruments. Luna: That sounds incredibly frustrating for anyone trying to build wealth. If cash yields are around three point eight percent but inflation is effectively running closer to four percent in your actual experience, you are losing ground regardless of what the official numbers say. Lucas: That is the definition of losing ground. And with the European Central Bank keeping rates on hold at 2.5 percent while the US moves toward higher rates, we are also seeing currency fluctuations that impact import prices. A weaker dollar makes imported goods more expensive, which feeds right back into that CPI number we started with. Luna: So it is a global feedback loop. The US economy influences the dollar, the dollar influences imports, imports influence CPI, and CPI influences the Fed. It is hard for any single entity to untangle that knot. Lucas: Harder, but not impossible. The key is to watch the labor market closely. If unemployment starts to tick up, that wage pressure will dissipate, and then we might finally see the core CPI drop meaningfully. Until then, we are in a holding pattern. Luna: Which means patience is the best strategy. Don't panic sell, don't over-leverage. Just ride out the volatility and wait for the data to clarify the direction. Lucas: Agreed. For listeners watching their portfolios, consider diversifying into assets that benefit from higher inflation, like certain commodities or infrastructure plays, rather than just sticking to cash or standard bonds. Luna: Good advice. In a world where the cost of living is rising faster than savings accounts, you need your money to work harder. Lucas: Absolutely. One final thought on the gold prices we are seeing. Gold futures dropped 4.3 percent recently, but given the uncertainty in fiat currencies and the sticky nature of inflation, many analysts believe that dip could be a buying opportunity for long-term holders. Luna: It is always worth remembering that gold is a hedge against chaos, not necessarily a short-term trading tool. In this late 2026 landscape, chaos is still on the table. Lucas: True. So as we close out today, remember that the numbers are guides, not gospel. Your lived experience is the most important data point you have. Luna: And use it to inform your decisions, not just to vent your frustrations. There is strategy in understanding the system. Lucas: Exactly. Keep listening, keep questioning, and we will see you next time with another deep dive into the economics shaping your world.