Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / How the Hotel Industry Is Rewriting the Inflation Story
Transcript
- Lucas: So I booked a hotel room last week for a conference in Chicago, nothing fancy — a mid-tier Marriott near the convention center. And the rate was three hundred and forty dollars a night. Luna: Oof. That's more than I paid for a room in Manhattan three years ago. Lucas: Exactly. And that's the thing — the official CPI data for lodging away from home showed a year-over-year increase of about four point five percent in April. But my wallet felt a lot more than that. Luna: So is the CPI undercounting hotel inflation, or is there something structural going on? Lucas: I think it's both. The CPI measure for hotels and motels is heavily weighted toward what people actually pay, including discounts and corporate rates. But the sticker price — the rate you see on Booking.com or Marriott's app — has surged much more. Luna: Right, because business travelers and government per diems get negotiated rates. But leisure travelers and last-minute bookers like you pay the full flex rate. Lucas: Precisely. And here's the structural piece: hotel supply has not recovered to pre-pandemic levels. According to STR, a hotel data firm, the U.S. had about five point six million hotel rooms in 2019. That number actually dipped during the pandemic as properties closed, and new construction has been anemic. Luna: I read that hotel construction starts are still about thirty percent below the 2019 pace. High interest rates make financing new hotels really expensive. Lucas: So you've got constrained supply, steady demand — especially from group and business travel coming back — and that gives hotels pricing power. Marriott's revenue per available room, or RevPAR, was up about six percent year-over-year in their last earnings call. Luna: And that's after a few years of already big increases. So it's not a one-time spike; it's a sustained repricing. Lucas: Exactly. And then add labor costs. Hotels are labor-intensive — housekeeping, front desk, maintenance. Wages for hotel workers have risen faster than the national average, partly because of tight labor markets and partly because of union contracts in big cities. Luna: So that three-forty rate includes higher wages for the person who cleans your room and the person who checks you in. Lucas: It does. And there's also a mix shift happening. The big hotel companies have been pushing more rooms into the luxury and upper-upscale categories, which have higher average daily rates. Marriott's luxury portfolio, for example, has grown faster than its select-service brands. Luna: So even if the number of rooms eventually catches up, the average price per room may stay elevated because the mix is pricier. Lucas: That's the thesis. And it matters for the inflation narrative because lodging is a component of both CPI and PCE. But unlike rent, which is smoothed out over long leases, hotel rates adjust immediately to market conditions. So they can be a leading indicator for where shelter costs are headed. Luna: Interesting. So if hotel rates are still climbing, that might signal that rent inflation isn't going to fall as fast as the Fed hopes. Lucas: Potentially. The relationship isn't one-to-one, but there's a spillover. When hotels are expensive, some travelers look for short-term rentals, which pushes up rents in that segment. And city governments are cracking down on Airbnb, which reduces that alternative supply. Luna: So it's a feedback loop. Higher hotel rates push people to short-term rentals, those get regulated, supply shrinks, and rents go up. Lucas: Exactly. And then you've got the international travel piece. The dollar has been strong, which brings more foreign tourists to the U.S., and they're willing to pay top dollar for rooms. That adds demand pressure in gateway cities like New York, San Francisco, and Miami. Luna: So the hotel industry is kind of a microcosm of the whole sticky inflation story: supply constraints, labor costs, mix shifts, and global demand. Lucas: It really is. And it's one of those areas where the official inflation statistics feel disconnected from what consumers experience. The CPI says lodging inflation is moderate, but if you try to book a weekend in Nashville or Austin, you might pay double what you did in 2019. Luna: And that disconnect matters for consumer confidence. When people feel like prices are higher than the numbers say, they get grumpy about the economy even if GDP is growing. Lucas: Yeah. And you see that in sentiment surveys. The Michigan consumer sentiment index has been stuck in the low seventies for months, even as the labor market stays strong and the stock market hits new highs. Part of that is the cumulative effect of price levels that haven't come down. Luna: Right, inflation can cool to two percent, but prices are still much higher than they were three years ago. That's the level shift. Lucas: Exactly. And hotels are a visible, frequent purchase for a lot of people. You don't buy a house every month, but you might book a hotel a few times a year. So those price increases stick in your memory. Luna: Okay, so what would it take for hotel inflation to actually cool? More supply? Weaker demand? Lucas: Both, probably. If interest rates come down later this year or in 2027, hotel construction should pick up. That would add supply over a two-to-three-year horizon. On the demand side, if the economy slows, business travel is usually the first thing companies cut. Luna: But we're not seeing that yet. The May jobs report is out tomorrow, and ADP already showed solid private payroll growth. Lucas: Right, the economy is still adding jobs, which supports travel demand. So hotel pricing power may persist for another year or two. That's another reason the Fed might stay cautious about cutting rates. Luna: Speaking of staying cautious — if walking through the economy with us has made something click for you today, or on any of the previous thirty-three episodes, there's a small way to keep this show ad-free and independent. Lucas: Yeah, it's buy me a coffee dot com slash fexingo. Honestly, if today's episode was worth the price of a coffee to you, that link is there. No pressure, no subscription — just a way to say 'this was useful.' Luna: And we appreciate that. It helps us keep doing deep dives like this one without chasing clicks or advertisers. Lucas: So back to hotels — one more thing I want to flag. The hotel industry is also dealing with higher property insurance costs, especially in states prone to natural disasters. Florida, California, Texas — insurance premiums for hotels have jumped twenty to thirty percent in some cases. Luna: That gets passed straight through to room rates. So even if labor costs stabilize, insurance could keep pushing prices up. Lucas: Exactly. And that's the kind of structural cost that doesn't reverse. It's a permanent reset of the pricing floor. So when you hear the Fed talk about 'services inflation ex-housing' being sticky, hotels are a big part of that story. Luna: Makes sense. So next time I book a room and wince at the rate, I'll think of supply constraints, labor costs, insurance, and mix shifts — not just inflation being stubborn. Lucas: Exactly. It's more nuanced than a single CPI number. And that nuance is what we try to bring you every week.