Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Lettuce Prices Plunged While Grocery Bills Stay High
Transcript
- Lucas: So the headline out of this week's inflation data — headline CPI edging up to 332.8 in July — but underneath that, there's this wild story about lettuce. Prices for lettuce just saw a record-setting plunge, and it's not because we're suddenly all eating kale. Luna: Yeah, I saw that headline. 'Nobody wants it' — that's harsh. But cyclospora scares people. What's actually happening at the checkout counter? Lucas: Right, so this is a classic case of a demand shock rather than a supply glut. A cyclospora outbreak linked to lettuce has consumers spooked. Demand falls off a cliff, and prices collapse. We're talking a record-setting drop. But here's the thing — this is happening while your overall grocery bill is still going up. So how do we square that? The CPI for food at home, that's still climbing, just more slowly. Luna: So one item gets cheaper, but the basket still costs more. Why isn't the lettuce discount showing up in the average? Lucas: Because of weights. In the CPI basket, lettuce is a tiny sliver. It's not like beef or bread. So even a massive price drop in lettuce barely moves the index. It's a great example of why you can't just 'check the price of one thing' and think you understand inflation. Luna: And meanwhile, wholesale prices were flat in July — below expectations. So the pipeline isn't showing much pressure either. But I guess that doesn't mean your grocery bill is going to feel lighter next month. Lucas: Exactly. The producer price index being flat suggests some easing at the wholesale level, but that takes time to feed through, and it's not universal. Services prices, for example, are still sticky. Core services — things like rent, medical care, recreation — that's where the real persistence is. And that's what the Fed is watching. Luna: So the Fed sees this mixed picture — goods disinflation, services inflation — and they're staying on hold. The fed funds rate is still around 3.63 percent. They're not in a rush to cut. Lucas: Right. And it's not just the Fed. The bond market's ten-year breakeven inflation rate — that's a measure of expected inflation over the next decade — it slipped to 2.26 percent. That's actually below where it was a day earlier. So markets are pricing in contained inflation, but the Fed is looking at the details and seeing some places where it's not cooling as fast. Luna: Which brings us back to lettuce. A freak event that doesn't move the macro needle, but it does hit your wallet if you're a salad lover. And it reminds us that food prices can be volatile for reasons that have nothing to do with the broader economy. Lucas: And that's a useful way to think about the whole inflation picture right now. We've got these big, slow-moving trends — services inflation, shelter costs, wage growth — and then these noisy, dramatic swings in a few volatile categories like food and energy. The CPI number we get each month is a blend of both, and it's easy to overreact to one specific headline. Luna: You know, this reminds me of something we've talked about before — the gap between the feel and the data. Like, your rent might be going up 5 percent, but the CPI says shelter costs rose 3 percent. Which one is right? Lucas: They're both right, depending on what you're measuring. The CPI takes a sample of rents across the country, including existing tenants, and that tends to lag what's happening with new leases. So if you're moving right now, you might be seeing a bigger increase than the index suggests. That's part of why the 'official' inflation number can feel disconnected from your personal experience. Luna: And that disconnect is probably why people feel like their cost of living keeps rising even when the headline CPI is cooling. It's not that the number is wrong, it's just that it's an average. Lucas: Exactly. And that's one reason we do this show without ads. We want to give you the tools to interpret these numbers for yourself, not just read you the headlines. If that's been useful to you, and you want to keep it that way, you can support us at buy me a coffee dot com slash fexingo. It's a small way to keep the podcast ad-free and independent. Luna: Yeah, that's it. It's a simple way to help us keep doing what we do. And honestly, it makes a difference. Lucas: Now, back to the bigger picture. Beyond lettuce, there's another number that caught my eye this week: the budget deficit surged in July to its highest level since March 2021. That's a fiscal story, but it has an inflationary angle. Luna: How so? Isn't the deficit a separate beast? Lucas: Structurally, yes, but when the government borrows and spends more, it injects demand into the economy. If that demand outstrips supply, it can push prices up. Now, we're not seeing that right now — inflation is cooling — but it's a factor the Fed has to keep in mind. A bigger deficit can also put upward pressure on long-term interest rates, which complicates the Fed's job. Luna: So it's not just about the CPI report. It's about the whole picture — what the Fed sees, what the bond market sees, and what your wallet sees. Lucas: Right. And I think that's the takeaway. The lettuce plunge is a great hook, but it's a distraction if you're trying to understand where inflation is headed. The real story is in the services numbers, the shelter data, and the labor market. The July jobs report was a bit soft — we talked about that last week — but the Fed is still waiting to see more consistent evidence that inflation is sustainably heading to 2 percent. Luna: And meanwhile, the core CPI is still running above 3 percent, right? Core was 336.8, up from 336.06 the month before. So that's still a modest increase. Lucas: Yeah, core inflation is proving stubborn. It's coming down, but slowly. And that's why the Fed is on hold. They want to see more progress before they feel comfortable cutting rates again. The market is pricing in some easing later this year, but it's not a done deal. Luna: So if someone asks you 'what's happening with inflation?', what's your one-sentence answer? Lucas: I'd say: inflation is cooling, but it's not dead yet, and the details matter more than the headline. One item like lettuce can crash, but that doesn't mean your cost of living is going to drop. Luna: That's a good way to put it. And it's a reminder to look past the sensational headlines and focus on the trends that actually affect our budgets. Lucas: Exactly. So next time you see a story about prices falling, ask yourself: is this a blip or a trend? And check the weights — is it something you buy a lot of, or is it a rounding error in the index? That kind of thinking will serve you better than any single headline. Luna: And if you want to dive deeper into the data, we'll have the links in the show notes. But for now, that's it from us. Thanks for listening.