Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why June CPI Fell But Your Grocery Bill Didn't
Transcript
- Lucas: So the June CPI number came out this week—3.5 percent annual inflation, down from 3.7 in May. And a lot of people looked at that and thought, okay, things are finally easing. Luna: Right, but then they go to the grocery store and it doesn't feel that way. I've had three separate friends text me saying, 'Why is my bill still going up?' Lucas: Exactly. And that's the disconnect we want to dig into today. Because the headline CPI was pulled down largely by energy—gasoline dropped sharply. But the food at home index? Still up 2.1 percent year-over-year. Luna: And that's the stuff you buy every week. Eggs, milk, bread. Not a one-off fill-up. Lucas: Look, if walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these shows going. Buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it really does make a difference. And it helps us keep the show ad-free, which we love. Lucas: Alright, so back to that gap. The June CPI came in at 332.6, down from 333.98 in May. That's about a 0.4 percent month-over-month drop. But core CPI, which strips out food and energy, actually ticked up a hair to 336.1. Luna: So the stuff that's less volatile is still sticky. And that's what hits your wallet. Lucas: Right. Let's isolate food at home. That index rose 2.1 percent year-over-year. But within that, eggs are up 6 percent, coffee is up 4.3 percent, and fresh vegetables are up 3.8 percent. So it's not uniform. Luna: And the things that went down—like meats and poultry—are things people might not buy as often, or they're still higher than two years ago. Lucas: Exactly. The cumulative effect is what matters. Since January 2021, the food at home index is up over 18 percent. So even if the month-over-month change is small, the level is still elevated. Luna: And wages haven't kept up. Average hourly earnings grew 3.9 percent year-over-year as of June, which is above inflation, but for the bottom quartile, it's been tighter. Lucas: That's a key point. The headline CPI might be 3.5 percent, but if you're a renter who buys groceries and drives a car, your personal inflation rate is probably higher. The Fed watches core PCE, which was 2.6 percent in May, but that's a different basket. Luna: So when the Fed sees CPI dropping, they might feel less pressure to cut rates. The effective fed funds rate is still 3.63 percent, and they've held there since last December. Lucas: Right. And the 10-year breakeven inflation rate, which is a market measure of expected inflation, is at 2.22 percent. That's basically anchored. So the Fed's stance is 'we're comfortable holding.' Luna: But for the listener who's still paying $5 for a dozen eggs, the comfort is not mutual. Lucas: No, it's not. And one thing that's been interesting is how producer prices actually declined 0.3 percent in June, driven by lower gasoline. That should eventually flow through to consumer prices, but it takes time. Luna: And with the World Cup giving bars and restaurants a boost, some of that demand might keep service prices high. The Fed's Beige Book mentioned that consumers are showing warning signs—trading down, buying less. Lucas: So you've got a mixed picture. Energy is deflating, goods inflation is cooling, but services are still running hot. Rent is still rising 4.5 percent year-over-year, though shelter inflation is moderating slowly. Luna: And that's the biggest line item for most people. If rent is still going up 4.5 percent, your personal inflation is going to feel more like 4 percent than 3.5. Lucas: Right. And the CPI shelter index lags real-time rents by about 12 months. So the moderation we're seeing in market-rate rents now hasn't fully hit the CPI yet. That could bring headline inflation down further in late 2026. Luna: But in the meantime, people are stuck paying 2025 rents. That lag is frustrating. Lucas: It is. And it's why we always say: look at more than just the headline number. The median CPI, which the Cleveland Fed tracks, was 4.2 percent in May. That's a better measure of the typical price change across all items. Luna: And that number is still above 4 percent, which suggests the inflation problem is not solved. It's just shifted. Lucas: Shifted from goods to services, from energy to sticky items like insurance and education. Car insurance premiums are up 15 percent year-over-year. That's not in the headline. Luna: So the takeaway for the listener: don't look at the CPI headline and assume your life is getting cheaper. Look at the components that matter to you. Lucas: And for the Fed, the path forward is unclear. They're data-dependent. If energy stays low and shelter moderates, we could see a cut in September. But if services inflation persists, they'll hold. Luna: And with geopolitical risks—the Hormuz situation, China's slow growth—there's a lot of uncertainty. Wholesale prices falling could be a sign of weaker demand globally. Lucas: Yeah, China's GDP grew at its slowest pace since 2022 last quarter. That deflationary force is helping keep goods prices low, but it also means less demand for commodities, which feeds into energy prices. Luna: So the same factor that's lowering your gas bill is also hurting global growth. It's a double-edged sword. Lucas: Exactly. And for the average person, the net effect might be a slight easing at the pump but no relief at the register. That's the 2026 inflation story. Luna: Alright, well let's leave listeners with this: track your own 'basket' of goods. If you're spending more on rent and groceries, your inflation rate is higher than the government's. Lucas: And if that gap continues, it might affect how you vote with your wallet—trading down brands, buying in bulk, cutting subscriptions. That behavior shift is already showing up in retail data. Luna: We'll keep watching the data. Next week, we'll talk about how the PCE price index, which the Fed prefers, might tell a different story. Lucas: Sounds good. Until then, keep your receipts.