Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Coffee Budget
Transcript
- Lucas: If you bought a pound of coffee beans in 2020, you paid about four dollars and fifty cents. Today, that same pound — same origin, same roast — is running closer to six dollars and forty cents. That is a 42 percent increase in five years. Luna: Forty-two percent. And the Bureau of Labor Statistics tells us the coffee index within CPI is up eight percent just in the past twelve months. Lucas: Right. And those are the official numbers. The real-world experience is maybe even more striking because it comes in two forms: the higher price you see on the shelf, and the smaller bag you get for that price. Shrinkflation is alive and well in the coffee aisle. Luna: I've noticed that. A twelve-ounce bag used to be the standard. Now I'm seeing ten-ounce bags at the same price point, sometimes nine. Lucas: Exactly. The industry calls it 'gram creep.' Roasters are quietly dropping from 340 grams to 300. That's a twelve percent reduction that most people don't catch because the bag looks the same. And they're not alone — this is happening across packaged goods, but coffee is a particularly good lens because it's a daily purchase for so many people. Luna: And the underlying commodity has been under real pressure. Arabica coffee futures hit a thirteen-year high earlier this year. Drought in Brazil, frost in Colombia — climate volatility is hitting the supply side hard. Lucas: That's the structural story. Coffee is a tropical crop grown in a narrow band around the equator. As temperatures rise, the viable growing area shrinks. The International Coffee Association has been warning for years that arabica production could fall by fifty percent by 2050 if we don't adapt. That long-term supply constraint is one reason the price isn't coming back down. Luna: So what does that mean for the consumer who just wants their morning cup? The average latte in a city like New York or San Francisco is now six dollars and seventy-five cents. In some shops, it's pushing seven. Lucas: And that's before tip. The national average for a plain brewed coffee is still around two dollars and fifty cents, but premium drinks — cold brew, oat milk lattes, anything with a modifier — that's where the inflation really shows up. Let's put that in context: if you buy one latte per workday at six seventy-five, that's about one hundred and thirty-five dollars a month. Over a year, that's over sixteen hundred dollars on coffee. Luna: Sixteen hundred dollars. That's a meaningful chunk of someone's budget. And the inflation there is running about double the overall CPI, which is hovering around three percent. Lucas: Right. The latest CPI print, released in May, shows the all-items index at 334.0 — up about 0.5 percent from the prior month. But the coffee sub-index is climbing faster. The 10-year breakeven inflation rate, which is the market's expectation for average inflation over the next decade, is at 2.24 percent — that's up from 2.22 the day before. So markets are pricing in persistent, if moderate, inflation. And coffee is outpacing that. Luna: Is there any reason to think coffee prices will moderate? Maybe if Brazil has a bumper harvest or logistics costs ease? Lucas: It's possible in the short term. We've seen volatility — futures prices can swing ten percent in a week on weather forecasts. But the structural trend is higher. Global coffee demand continues to grow, especially in emerging markets like China and India, where coffee culture is expanding rapidly. Supply is constrained. And then you have the costs on the roasting and retail side — labor, rent, energy. All of those are up. The PCE price index, which is the Fed's preferred inflation gauge, hit 131.5 in May, up from 130.9. Core PCE, excluding food and energy, is at 130.1. So services inflation remains sticky. Luna: That's the piece that I think a lot of people don't connect — it's not just the bean. It's the barista's wage, the electricity for the espresso machine, the rent for the storefront. All of those costs flow into your cup. Lucas: Exactly. And the Fed is paying attention. Cleveland Fed President Hammack said this week that AI could actually fuel inflation, and that rate hikes may be necessary. The Fed funds rate is currently at 3.63 percent, which is already restrictive. If they hike again, that slows the economy, but it doesn't directly lower coffee prices — it just makes borrowing more expensive, which can reduce demand across the board. But demand for coffee is pretty inelastic. People still buy it. Luna: So what can someone do? I mean, you can brew at home — that's the classic advice. But even bagged coffee from the grocery store has gone up. Lucas: Brewing at home still saves you a lot. A twelve-ounce bag at six dollars and forty cents makes about twenty-four cups, assuming two tablespoons per cup. That's about twenty-seven cents per cup. Compare that to two fifty for a diner coffee or six seventy-five for a latte. The markup is enormous. But not everyone has the time or the equipment. And there's also the question of whether you're willing to switch to a cheaper roast or a different brand. Luna: I've seen some people switching to robusta blends or buying in bulk from wholesale clubs. That can bring the per-pound cost down. Lucas: It can. But the point of this episode isn't to tell people to give up coffee. It's to be aware that this is a category where inflation is hitting harder than the headline number suggests. If you're feeling squeezed, it's not in your head. The data backs it up. Luna: And it's worth keeping an eye on, because coffee is often a bellwether for broader consumer goods inflation. If coffee is up, other packaged foods are likely not far behind. Lucas: That's a great point. And it ties into something we talk about a lot on this show — which is that being aware of where inflation is hitting hardest can help you make better decisions. Even small adjustments can add up over time. Luna: Speaking of small things adding up — if our money conversations have helped you think about a decision differently, you can support the show at buy me a coffee dot com slash fexingo. It's the smallest possible ask, and it genuinely helps keep this ad-free. Lucas: Yeah, we really appreciate that. And we mean it — if today was worth a coffee to you, that's the link. No pressure at all. Luna: Alright, let's get back to the numbers. One thing that's interesting is that while coffee prices are up, some inflation hedges like gold and silver have been moving the other way. Gold is at about three thousand nine hundred ninety-one dollars an ounce, down two percent on the week. Silver is at fifty-eight dollars, also down. Lucas: Right. Commodities have been mixed. The S&P 500 is up nearly two percent over the past five days, hitting 7,499. The NASDAQ is up almost three percent. So risk-on assets are rallying, but inflation expectations are still elevated. That's a tricky environment for the typical consumer. Luna: And the small-cap index, the Russell 2000, just had its best first half in 35 years. That suggests optimism about the domestic economy, but if inflation stays sticky, that optimism could be tested. Lucas: Exactly. So the overarching message on coffee — and on inflation generally — is to stay informed, track your own spending, and make conscious choices. You don't have to cut out everything you love. But knowing what you're paying and why gives you power. Luna: Well said. Thanks for listening today. We'll be back with another angle on inflation and your money tomorrow. Lucas: Take care.