'Funflation' surpasses core inflation: Who it's hurting most

[00:00:00] Speaker 1: U.S. inflation cooled to 3.5% last month thanks to a drop in energy costs. Even so, many Americans, and Allison was just talking about it, are still feeling the squeeze when they go out. It's what PNC Bank calls fun-flation. For example, the price of tickets to a sporting event has gone up more than 10% on average since 2019. Over the same time, the cost of movies, theaters, and concerts have gone up by nearly a third. So you might think, it'd be fine, I'll just stay home, right? I'll have fun at home. Well, that's gotten more expensive as well. Video game prices have soared 52%, and cable TV and streaming have risen 28%. And I know many people have noticed that increase. And then there are all those ancillary costs, the internet, electricity. I could go on, but instead, Brian LeBlanc, from the head, he is the head of economic analysis at PNC Economics Research, and he will go on. He is a senior economist and managing director at PNC. All right, Brian, fun-flation. So many of us are listening very closely right now because, you know, it's a fun moniker, right? Fun-flation. But we actually do feel it. How did we get here? When did the cost of experiences get so high? [00:01:19] Brian LeBlanc: Thank you very much for having me. It's a great question. You know, fun-flation kind of first reared its ugly head in 2023. I think we got a little bit of a reprieve from it over the past couple of years, but it's very much back in 2026. You pointed out a lot of the things we're seeing, too. Flight prices up 25% over the past year. Sporting event prices up 6% just over the past year. So we're seeing a very much increase in 2026, and it's turning into a meaningful driver of services from inflation overall. [00:01:49] Speaker 1: Not our imagination, right, Brian? It's real. The pain is real. [00:01:54] Brian LeBlanc: Yeah. [00:01:55] Speaker 1: Now, the inflationary spike post-pandemic seemed to be easing somewhat in the last couple of years, but now we're back into it. It can't just be rising energy costs, right? I mean, what's going on? There is clearly more demand, and people, companies, are taking advantage of that. [00:02:12] Brian LeBlanc: That's exactly right. I would say it is becoming much more expensive to travel. You know, flight prices are up. Whether you're driving or flying, it's gotten more expensive to do some of these leisure and entertainment sort of fun activities. But like you said, there's also a significant amount of demand still out there, especially with upper and middle income households. There's a lot of discretionary income still at play. We're still seeing very healthy balance sheets, particularly on those upper part of the K, for sure. [00:02:42] Speaker 1: Yeah, and we have a chart up right now showing leisure inflation as compared to core PCE. But you actually say that this is hitting generations differently, right? As you said, middle and high income households usually are older, right? So what's happening to Gen Z out there right now? [00:03:02] Brian LeBlanc: It's a good question. So Gen Z and, to the lesser extent, millennials, they spend a larger proportion of their incomes on these fun activities, whether it's travel, entertainment, concerts, and they're also kind of harnessing a disproportionate share of the price increases as well. So where we are seeing more of an impact is some evidence of a pullback with lower, sorry, excuse me, younger households. We're not really seeing any evidence of them spending less dollars, but they are kind of pulling back on volume. So they're kind of going to fewer concerts, traveling somewhat less. It's on the margin, but it's showing up, and it's showing up for the first time in 2026. [00:03:43] Speaker 1: Yeah, and I think you've talked to younger people, it's showing up with them as well in their household budgets. They want to do more. It's the ages they should be doing more, but they can't afford it given their salaries. Before I let you go, Brian, is there a remedy here? Do you think, do you see things changing in the next year or two? [00:04:01] Brian LeBlanc: You know, I think part of the story in 2026 is you've got the World Cup kind of bringing folks out. Households did receive bigger tax refunds. I think some people put that to vacations. Some of this might be a little bit of a temporary demand boost that will fade in the second half of the year. But more broadly, services inflation has just been incredibly persistent, despite weakening labor force, despite kind of continued weakening in wage growth. So it's going to continue to be a problem, and I think that the Fed has noticed that. [00:04:32] Speaker 1: Interesting. Brian LeBlanc, thank you very much for making a fine point of it, that it is not our imagination. Funflation is real. Wall Street has reported record-breaking second quarter results. The five biggest banks in the U.S., JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs, all beat expectations. And how? Goldman Sachs shares in particular absolutely popped, and for good reason. JPMorgan posted the largest quarterly profit ever by a U.S. bank. All five banks benefited from a boost in trading revenue and that corporate dealmaking, which just goes on and on. Alison Morrow has been across this for us in New York. Yeah, eye-popping indeed. I just couldn't believe how much money they actually made on margin, meaning, yes, their revenue expanded, but certainly their profits expanded as well. [00:05:28] Speaker 3: Yeah, I mean, it's kind of silly to talk about, you know, Wall Street banks figure out how to make money. That's what they do. But what's really interesting about this quarter is how they made money despite everything. We have high inflation in the United States. We have a war going on. We have an affordability crisis. Consumers are struggling. You know, it's a real moment for that K-shaped economy that we've talked about where the upper rung of the K is doing really well. Wealthy people are doing well. Banks are doing well. And regular people are struggling a bit. But all of this is tied to the bank's stock trading operations. You know, deals were back in a big way. As you mentioned, Goldman, Goldman Sachs had a huge profit increase. Stock was up something like 8% earlier today. And that was all partly because it led the SpaceX IPO earlier this year. It's also led on Google's equity deal earlier this year. So it's just had a lot going on in the kind of high-level finance, that corporate finance that is separate from, you know, what regular people deal with. [00:06:35] Speaker 1: Yeah, and as you see, two of the banks were down, but the expectations were quite high. So I wouldn't feel sorry for even any of those stockholders right now. We had this shock, though, from IBM, and it wasn't so much the results, but it was the guidance that they gave as well. What happened there? Because the stock was down 25% and stayed there. [00:06:53] Speaker 3: Yeah, so this is kind of the flip side of the AI fervor that was really great for banks and for hyperscalers. You know, tech earnings are coming in next week, so we'll have to check in with them. But by most accounts, they're going to be just fine. IBM, though, is not part of that AI core group. And the CEO came out today and was very frank, saying, we screwed up. Their customers are pulling back spending. Their customers are primarily businesses with IT budgets, and those budgets are finite. You know, they are switching to buying up AI infrastructure, building out memory chips, and spending less on IBM's software and hardware. And then they're also ramping up their IT budgets to fight off AI-based cyber attacks. That was another part of the report that didn't get as much attention. But there's kind of AI buffeting them on both sides, and they really underestimated the pullback that they would see in sales. [00:07:53] Speaker 1: Yeah, more interesting to watch that stock. Some people are saying it's a buying opportunity right now. Not down that much, actually, from its low just a few months ago. Alison Morrow, thanks for wrapping up for us. Appreciate it. Thank you.