Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Grocery Bill Feels High Even as Inflation Cools
Transcript
- Lucas: So the July CPI report came out this week, and the headline number was 2.9 percent year over year, down from 3 percent in June. That's the lowest we've seen in over three years. But here's the thing — if you've actually been to a grocery store recently, you're probably not feeling it. Luna: Right, because my last receipt for two bags of groceries felt like it could have paid for a small appliance. What's going on with food prices specifically? Lucas: That's exactly the disconnect we're going to dig into. The CPI basket includes food, but the 'food at home' index — that's groceries — is still running at 3.1 percent year over year. That's higher than the headline number. And it's not just you; the average household is spending more on food than they were a year ago, even as overall inflation cools. Luna: So the headline number is down, but the stuff we actually buy every week is still going up faster. That feels like a bait and switch. Lucas: Yeah, and it's a reminder that the CPI is an average — it's a basket of everything, from flat-screen TVs to bus fares. Your personal inflation rate depends on what you actually buy. And for most of us, food is a big chunk of the budget. Luna: And speaking of what we actually buy — before you keep going, I gotta say, this kind of clarity is exactly why I love doing this show. If today's episode helps you make sense of your own grocery bill, that's a win. And the way we keep these conversations ad-free is through listener support. If you find this useful, you can buy me a coffee at buy me a coffee dot com slash fexingo. Lucas: Yeah, every little bit helps us keep the lights on and the episodes coming. And honestly, it's listeners like you who keep us going. Luna: So, back to that grocery bill. Why is food at home still climbing when the overall CPI is cooling? Lucas: So part of it is that food prices are sticky. They don't come down quickly because the costs to produce and transport food are still elevated. Fertilizer, fuel, labor — those costs have baked in over the last few years. And even when input costs drop, grocery stores are slow to pass those savings along. Luna: But didn't we see that big lettuce price plunge? I heard something about that — record-setting drop because of a cyclospora scare. Lucas: Yeah, lettuce prices crashed in July, down something like 20 percent month over month. But here's the catch — that's a blip, not a trend. It's driven by a temporary demand shock. People got spooked, and stores had to clear inventory. That doesn't mean your overall grocery bill is going to drop. Luna: So one vegetable's price plunge isn't going to fix the fact that my eggs and chicken are still costing me an arm and a leg. Lucas: Exactly. And that's the thing — the food at home index is made up of dozens of items. You might get a break on lettuce, but if meat, dairy, and packaged goods are still climbing, the overall number stays high. In July, meat prices were up 4.2 percent year over year, and that's a big part of what you feel at the register. Luna: And I imagine there's also a gap between what you pay at the grocery store versus what you pay at a restaurant. I feel like eating out is getting even more expensive. Lucas: You're onto something. The 'food away from home' index — that's restaurants and takeout — was up 4.5 percent year over year in July. That's even higher than groceries. Restaurants are dealing with higher labor costs and rent, so they've been raising menu prices more aggressively. Luna: So the gap between the headline CPI and what we actually spend is widening. That's frustrating. How are policymakers thinking about this? Lucas: Well, the Fed looks at a different measure — core PCE, which strips out food and energy. That's running at 2.9 percent as of June, still above their 2 percent target. So even if food prices were to cool off, the underlying inflation pressures are still there. Luna: And that's why the Fed's been holding rates steady at 3.63 percent effective, right? They're waiting for more evidence that inflation is truly under control. Lucas: Right. The fed funds rate has been flat at that level for a few months now. And with core PCE still above target, they're not in a rush to cut. But here's the interesting part — the bond market is actually pricing in lower inflation ahead. The ten-year breakeven rate is around 2.27 percent, up slightly from last week, but still below where it was a year ago. Luna: So the bond market seems to think inflation will keep cooling, even though my grocery bill doesn't agree. What's the disconnect there? Lucas: Part of it is that the market looks at the longer-term trend, not the monthly noise. And it sees things like the housing market cooling, which is starting to feed into lower rent inflation. But food and services are still lagging. The other factor is geopolitical — you've got the war in Iran, which could disrupt energy supplies and push prices up again. That's a wildcard that could reverse some of the progress. Luna: So even if the Fed gets inflation down, a shock could send it back up. And that would hit our grocery bills even harder, since energy is a big input cost. Lucas: Exactly. So when you hear 'inflation is cooling,' it's true on average, but the average hides a lot of variation. Your personal inflation rate depends on what you buy, where you live, and even how you shop. Luna: So what's the takeaway for someone listening who wants to actually understand their own cost of living? Lucas: I'd say don't obsess over the headline CPI. Instead, look at the components that matter to you. The Bureau of Labor Statistics publishes the breakdown, so you can see how food, rent, and transportation are moving. And remember, the Fed's goal is to bring inflation down to 2 percent — but that's an average. Some things will always be going up faster. Luna: And in the meantime, we're all just trying to stretch our budgets. One thing that helps me is buying in bulk when staples go on sale, especially if the price is rising. Lucas: That's a solid strategy. And it's worth noting that grocery store competition can vary by region, so shopping around can make a real difference. But overall, don't expect a dramatic drop in your grocery bill anytime soon. The trend is moderating, but it's still above the overall inflation rate. Luna: So next time you see that CPI headline, remember it's not telling you the whole story of your wallet. Lucas: Exactly. And if you want to dig deeper into the numbers, we've linked the BLS breakdown in the show notes. But for now, keep that in mind the next time you're at the checkout.