Is inflation going down? Because of this, prices still feel high

On paper, the US economy was strong. Inflation has fallen from its 2022 peak, the labor market remains solid and robust consumer spending is driving GDP growth.

But all of these metrics mean little to consumers struggling to cope with post-pandemic normalcy, in which food prices have risen more than 25% compared to 2019.

“It seems like prices have come to a halt, but they have come to a halt at the height,” said Hannah Zak, 33, of Warsaw, New York.

Zak said her $48,000 salary is closer to $33,000 after taxes, insurance and retirement savings, leaving her with little spending money left. She canceled streaming subscriptions, switched to generic brands and cut spending on hair care products and clothing.

Still, she feels the pressure of inflation every time she finds about $75 to feed herself and her 7-year-old Chihuahua princess for a week. When she helps her siblings grocery shop, the grocery bill rises to over $100.

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“Like everyone else, I have a mortgage or rent, a car payment and some debt,” she said. “I have a job that pays me well enough to make ends meet, but there are no extras.”

According to Joanne Hsu, director of consumer surveys at the University of Michigan, consumers are noticing that inflation is slowing but remain frustrated with persistently high prices.

“It’s frustrating to see such a large portion of your salary going to your expenses and bills,” Hsu said. “So many of them don’t feel like they’re doing well despite the fact that they’re fully aware that inflation has slowed.”

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How do consumers think about inflation?

Price increases have been declining since June 2022, when inflation peaked at 9.1% year-on-year. The latest consumer price index showed inflation at 2.6% year-on-year in October.

As a result, consumers have better economic sentiment than in 2022, but sentiment is still low by historical standards, according to consumer surveys from the University of Michigan.

That’s partly because higher prices are here to stay. Even though inflation has cooled, that doesn’t mean prices are falling. Rather, the pace of price increases is slowing. While consumers may be hoping for prices to return in 2019, widespread price declines – also known as “deflation” – are usually a sign of a weak economy.

“We’re not experiencing deflation, and we generally won’t be experiencing deflation – a decline in the price level – unless we’re in some kind of crazy recession,” Hsu said. “But I think it’s completely understandable that consumers are very frustrated by high prices, even as their wages are rising.”

Average hourly wage growth in the U.S. has exceeded inflation since May 2023, according to data from the Bureau of Labor Statistics. But not every American has seen their salary keep up with the cost of living. And even those who have suffered a pay rise are still struggling to cope with higher prices.

“People want all wage increases to go toward things that are fun,” said Michael Swanson, chief agricultural economist at Wells Fargo’s Agri-Food Institute. “They are happy with the fact that their wages have risen sharply, but they are upset that these have to be used to cover inflation.”

Adjustment to higher prices

Lauren Throop remembers filling her $75 shopping cart before the COVID-19 pandemic hit. Now she spends nearly $120 to support herself, her husband and her two children.

“It feels like things spiked around COVID, with all the talk about supply chain disruptions, and then they just stayed elevated,” she said. “It feels like food prices are still high relative to where they should be.”

Throop is among a growing share of Americans who have become skeptical of the food industry after pandemic-era price increases. Opinions are mixed about the cause of food inflation, but some politicians, including President Joe Biden, have accused food and beverage companies of price gouging.

Throop’s shopping options are limited in Laramie, Wyoming, especially when looking for deals. She said she’s not a fan of Walmart but shops there more often to lower her grocery bill.

“It was nice to see reports of a decline in inflation,” Throop said. But for now: “I’m just trying to cook things that aren’t that expensive. I enjoy cooking salmon because it’s really good for growing children’s brains, but I don’t do it as often as I used to. I’m trying to cook things like grains and beans a little more regularly because it’s cheaper.”

Expectations for 2025 and beyond

As inflation begins to slow, some economists worry that President-elect Donald Trump’s policies of tax cuts, tariffs and deportations could reverse that trend.

Even if inflation continues to cool, it could take years for prices to feel normal again, said Wells Fargo’s Swanson, especially for regular purchases like those at the supermarket.

Consumer sentiment could benefit if wages were given more time to outpace inflation, making everyday purchases feel less like a burden on household budgets. After dramatic price increases, consumers also need more time to adjust to the prices, Swanson said.

“Say you have a few kids at home and milk makes up a large portion of your purchases. You know when that changes,” he said. “It takes years to reset that. … It might take a few years for people to think, ‘Yeah, that’s fair.'”

Is inflation going down? Because of this, prices still feel high

ByAmelia Journalton

By Amelia Journalton

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