Inflation Slows, But Prices Remain High
The annual inflation rate has slowed down, according to new data released Wednesday by the U.S. Bureau of Labor Statistics.
The July consumer-price index shows an annual inflation rate of 2.9%, which is slightly lower than expected and the smallest increase since March 2021. This slowing inflation rate may be a welcome change for American consumers who have been feeling the impact of rapidly rising prices in recent years. However, experts say it is unlikely to lead to a decrease in grocery store prices.
“If inflation goes down, it means the rate at which prices increase is slowing down, but it generally doesn’t mean that prices are going down,” explains William Hauk, assistant professor in the Department of Economics at the University of South Carolina.
High inflation has resulted in a surge in consumer prices in the U.S. in recent years. In 2022, the U.S. experienced one of the highest inflation rates ever recorded. Grocery store prices are now almost 25% more expensive than they were before the pandemic. The COVID-19 pandemic, coupled with global conflicts, caused major supply chain disruptions and higher prices.
But in recent months, inflation has shown signs of cooling down. In June, the inflation rate dropped by 0.1%, marking the lowest monthly growth rate since May 2020 and a two-thirds decrease from June 2022.
While this may not translate to lower prices, it does mean shoppers are less likely to experience sticker shock each time they visit the store. While most consumers might be hoping to see cheaper prices, economists say that lowered prices, also known as deflation, would be a bad sign for the economy and could lead to a recession. This is because deflation typically occurs when people are spending less. “Of course, we’d like prices to be lower, but the problem is that one person’s spending is another person’s income,” says Hauk. “So if prices are generally decreasing throughout the entire economy, on average, it also probably means that people are making less money throughout the economy, on average.”
If people expect prices to go down in the future, they might hold off on buying big items, resulting in less money flowing through the economy. Deflation would also cause problems in the lending market, if borrowers are not making enough to pay off loans.
However, this doesn’t mean that consumers have nothing to gain from disinflation. Mortgage rates tend to go down during periods of disinflation, making it easier for potential homebuyers or car owners.
And above all, consumers can expect a lot more stability. “It’s difficult to do financial planning when you’re not sure about the rate at which prices are going to be increasing in the future,” says Robert Triest, Professor of Economics at Northeastern University. Whether you’re buying a home or a carton of eggs, that’s good news.