Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / The Real Cost of Service Inflation on Your Wallet
Transcript
- Lucas: If our money conversations have helped you think about a decision differently, I want to ask for your support directly. If today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. Luna: Yeah, it really does keep the lights on and the research going. Thanks for being part of that ecosystem. Lucas: Let's get into the numbers because there is a subtle but dangerous shift happening in the inflation report that most people are missing. The headline CPI for September came in at 336.3, which sounds like a small uptick from August, but when you strip out food and energy to look at Core CPI, it hit 338.9. That number is stubbornly high, and it tells us that the problem isn't volatile commodities anymore—it's services. Luna: So we're looking at a scenario where the things you can't avoid—like insurance, healthcare, and professional services—are actually accelerating while goods prices stabilize? Lucas: Exactly. And if you look at the broader market context as of October 26th, 2026, the S&P 500 is hovering around 7,681, but the real story is in the Fed Funds rate, which has settled at 3.75 percent. The Federal Reserve isn't cutting rates aggressively because they see these service costs as deeply entrenched. You're paying more for labor-intensive services, and unlike a TV or a refrigerator, you can't factory-shift those jobs overseas to save money. Luna: That makes sense. Labor is local, so wages have to go up to cover those costs, which then feeds back into prices. It's a closed loop. Lucas: Right. And here is the concrete thing I want you to remember: look at your own household budget and separate 'goods' from 'services.' Goods inflation has been tamed. But services inflation, which includes things like legal fees, home repairs, and even education, is running hotter. The Core PCE price index, which the Fed prefers, was at 130.5 in August, and it's creeping up. This means your dollar is losing purchasing power faster in areas you spend it regularly, not just at the pump. Luna: I've noticed this with my own home maintenance. The materials might be stable, but the plumber's hourly rate has jumped significantly over the last two years. Lucas: That is a perfect example. It's the skilled labor shortage meeting persistent demand. When you pay for a service, you are paying for time, and time is getting expensive. This changes your investment profile because holding cash becomes risky—not just because of general inflation, but because your essential expenses are rising faster than your savings account yield. The ten-year breakeven inflation rate is at 2.34 percent, suggesting markets expect this trend to continue. Luna: So if my savings are only earning 3.9 percent, I'm barely breaking even after accounting for the fact that my actual cost of living is rising at maybe 4 or 5 percent in the service category. Lucas: Precisely. You are technically solvent, but you are losing ground in real terms. This is why we talk about 'sticky inflation.' It sticks to your monthly bills. The Interest on Reserve Balances is at 3.90 percent, so you're safe if you park money there, but you aren't growing wealth. You're just maintaining a very slow bleed. Luna: It feels like we're stuck in a middle ground where interest rates are too low to crush service inflation but too high to make borrowing cheap enough to stimulate a different kind of growth. Lucas: That's the policy dilemma. The Fed is watching the PPI closely, but consumer behavior is telling us that we are willing to pay for convenience and expertise. Look at the tech sector headlines from earlier this week—companies like Super Micro Computer and Netflix are still expanding, but they are doing it by investing heavily in infrastructure and content, which drives up service costs across the board. The capital expenditure cycle is inflating the economy from the top down. Luna: So even if I'm not buying servers, I'm feeling the ripple effect through higher taxes or higher prices for the digital services I use daily. Lucas: Exactly. Infrastructure costs get passed on. This brings us to a specific action item for your portfolio. You need to consider assets that benefit from or are insulated by service inflation. Real Estate Investment Trusts, or REITs, often have lease structures that adjust for inflation, but you have to pick the right sector. Industrial REITs are benefiting from the data center boom, while office REITs are struggling. Luna: That's a nuanced distinction. Most people just think 'real estate' as a blanket hedge, but the type of property matters immensely right now. Lucas: It does. And another angle is healthcare. With an aging population and rising service costs in medical care, healthcare stocks are acting as both a defensive play and an inflation participant. But again, be careful with the valuation. The Nasdaq is down 0.7 percent recently, showing some caution in growth sectors, so you don't want to chase high multiples. Luna: It seems like the era of easy money is definitely over, and now it's about picking winners in a world where everything costs more to deliver. Lucas: Yes. And one final concrete tip: review your subscriptions and recurring service contracts. If you have long-term fixed-price agreements for things like software or maintenance, lock them in if possible. If you're on variable pricing, look for competitors who are absorbing costs rather than passing them on immediately. It's a small lever, but in a 4 percent inflation environment, every basis point counts. Luna: Basis points matter when you're trying to preserve what you've built. It's not about getting rich quick anymore; it's about not getting poorer slowly. Lucas: Spot on. We'll keep tracking the CPI and PCE data as we move through Q4. For now, focus on your service-heavy expenses and ensure your income-generating assets are keeping pace with that specific type of inflation. Luna: Thanks for keeping us grounded in the reality of the numbers. I'll be looking at my budget line items tonight. Lucas: Do that. And let us know which service category has surprised you the most this year.