Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / How Your Internet Bill Is the New Inflation Signal
Transcript
- Lucas: So you check your email, you pay your internet bill, and maybe you think 'this is a fixed cost, it doesn't really change.' But the data says otherwise — and it's becoming a really interesting inflation signal. Luna: I just got my quarterly statement from my provider and it went up seven dollars. I assumed it was some promotional period ending, but you're saying this is broader? Lucas: Exactly. The Bureau of Labor Statistics tracks internet and telephone services as part of the CPI basket, and over the past year that category is up about 6.2 percent annualized. That's significantly above the headline CPI, which hit 4.2 percent in May. Luna: So internet bills are rising faster than overall inflation? That feels backwards — you'd think technology prices would keep falling. Lucas: And that's the conventional wisdom. But look — if you walk through the economy with us and these numbers start to click, honestly, that's because a handful of listeners chip in monthly through Buy Me a Coffee dot com slash fexingo. That's literally what funds making this many episodes ad-free. So if it's useful, that's the engine. Luna: Yeah, and it keeps us independent — no sponsors dictating which inflation stories we cover. So thanks to those who do. Lucas: Alright, back to internet pricing. The story here is about market structure. Most Americans have two, maybe three broadband options. In rural areas it's often one. That lack of competition gives providers pricing power — especially when demand is inelastic. People don't cancel their home internet when prices go up. Luna: So it's a textbook sticky service inflation — like rent or insurance. Not the kind that goes away quickly. Lucas: Right. And the Fed watches sticky services closely because they're harder to disinflate. Core CPI ex-food and energy was 336.1 in May — up from 335.42. That's persistent. Internet services are a small slice of the basket, but they're part of the stickiness. Luna: Let's talk about the numbers. You said 6.2 percent annualized. But isn't there also a component for telephone services? Are we talking cell plans too? Lucas: Good point. The CPI category is 'telephone and internet services.' Mobile plans have actually been flat to slightly down over the past year — intense competition among carriers. So the internet piece is dragging the average up. Some estimates put broadband-only inflation closer to 8 percent. Luna: Eight percent — that's double the headline CPI. What's driving that? Infrastructure costs? Or just pricing power? Lucas: Both, but mostly pricing power. The FCC's latest broadband report shows that the average price per megabit has actually fallen over the long run, but the average monthly bill keeps rising because consumers are buying faster tiers. You're not paying more for the same speed — you're paying more for 500 megabits instead of 200. Luna: So it's a mix of true price increases and upgrading. But the CPI tries to adjust for quality — they call it hedonic adjustment. Does that fully capture the upgrade effect? Lucas: It tries, but it's imperfect. The BLS models quality changes based on speed and reliability, but if your provider raises the price on your current plan by five dollars and also offers a new gigabit plan at a higher price, the index might treat the old plan as 'available' even if the provider stops advertising it. There's a lot of debate about this. Luna: So the official CPI could be understating the real cost for most households. If everyone's being nudged to higher tiers, the average bill goes up more than the index captures. Lucas: Exactly. And this connects to a bigger inflation story. Look at the 10-year breakeven inflation rate — it's at 2.31 percent as of last Friday, up from 2.29. That's the market's expectation for average inflation over the next decade. But if sticky services like internet, rent, and insurance keep running at 5-plus percent, the Fed has a problem. Luna: Because those categories don't respond quickly to interest rate hikes. You can't raise rates and expect your internet bill to drop next quarter. Lucas: Right. The Fed funds rate is at 3.62 percent effective — down just one basis point from May. The Fed has held steady for months. But services inflation remains stubborn. Internet is a good proxy for that: it's a subscription service, it's essential, and it's provided by companies with local monopolies or duopolies. Luna: Are there any signs of relief? I know some states are pushing for municipal broadband or subsidy programs. Lucas: A few. The federal Affordable Connectivity Program ended last year and that took a subsidy away from low-income households. Some states have stepped in, but it's patchwork. In the long run, more competition could help. But for 2026, the trend is up. And given the May CPI print — 4.2 percent year-over-year, highest in three years — every category matters. Luna: So when people look at their budget and wonder why things feel more expensive than the official numbers suggest, the internet bill is a good example of why. Lucas: Exactly. The basket of goods the CPI uses is an average — but your personal inflation rate depends on what you spend on. If you're a remote worker with two kids streaming school and Netflix, internet is a big share of your budget. And it's rising at 8 percent. Luna: Let's check the broader market context. The S&P 500 is at 7,431, up 0.3 percent in the last five days. The Russell 2000 jumped 3.1 percent. So small caps are rallying — maybe a sign that investors expect the Fed to cut rates soon? Lucas: Maybe. But sticky services inflation is one reason the Fed is cautious. The ECB just hiked rates for the first time since 2023 — on Thursday — because of energy costs tied to the Iran conflict. The global picture is not disinflationary. So even if the market prices in cuts, the Fed has to look at these micro signals. Luna: Internet bills as a leading indicator for sticky inflation — I hadn't thought of it that way. But it makes sense. It's recurring, essential, and oligopolistic. Lucas: And it's a reminder that not all inflation is about volatile food and energy. The core story — services — is where the Fed's battle really is. Next time your bill goes up, you know why — and you know it's part of a bigger pattern. Luna: So if you're looking at your own personal CPI, maybe factor in that 8 percent. And maybe call your provider to ask about loyalty discounts. Lucas: That's actually good advice. And on that note — thanks for listening. We'll be back tomorrow with another episode.