Inflation has now slowed for four straight months. Have you felt it?
If the answer is no, it might not be so surprising. Prices are up just 2.9% from a year ago, reflecting massive improvement after inflation increased at a staggering rate of 9.1% back in June 2022. Yet, since the coronavirus pandemic-induced recession began in February 2020, consumer prices have increased 20.9%. That means Americans would need about $1,209 to buy the same goods and services that cost $1,000 before the outbreak.
That’s well beyond the levels of inflation consumers are used to experiencing. For comparison, inflation rose 18.9% in the 2010s, 28.4% in the 2000s and 32.4% in the 1990s — and those rates were during a full decade, not just four years.
It’s worth noting that moderate levels of inflation can actually benefit consumers, as it signifies economic growth and business expansion, leading to increased employment opportunities and higher wages. The slowdown is also a positive sign for the Fed, as officials try to figure out when it could be time to start dialing back how much they’ve been restricting economic growth. Fed Chair Jerome Powell is likely to point to how far officials have come in his anticipated Jackson Hole address on Friday.
He’s also likely to talk about how the job isn’t over. Too much inflation feels akin to taking a pay cut. Of the nearly 400 items tracked by the BLS, only about 6% are currently priced lower than they were before the pandemic. Inflation is most notable in essentials, with food items making up 6 of the top 10 most inflated items since the pandemic. Grocery prices, in particular, have soared 25.2% compared to pre-pandemic levels.
That costs a lot over time. Say someone spent $100 on groceries every week before the pandemic. Adding inflation into the mix, that new weekly expense would total $125.20 — amounting to an extra $100.80 every month and $1,209.60 over the course of a full year.
With prices unlikely to ever go back to pre-pandemic levels, the key to feeling better relies on consumers recovering their lost purchasing power. As inflation slows down, there is a window of opportunity for wages to catch back up — and since last year, worker pay has been rising at a faster pace than prices. Yet, that relies on the economy continuing to avoid a recession. Higher unemployment and fewer job opportunities strips away workers’ bargaining power. Of course, it also could weigh on inflation too.
What do you think is more painful for everyday Americans: unemployment or inflation? And considering that consumers have already been pretty downbeat about the economy and their finances because of high prices, how do you think a slowing job market could impact sentiment?
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