Inflation is Easing Up, But You Are Not Noticing Any Difference in Prices

Inflation continues to be a hot topic in the news and in everyday conversations. While it’s true that inflation is lower than it was a year ago, prices are still high by two key inflation measures. And although the pace of price increases has slowed from a year ago, prices across all goods and services haven’t actually gone down, which may leave many feeling frustrated when paying their bills.

But there’s even more to the inflation story than just the headline numbers. Everyone feels the burden of inflation differently, depending on their lifestyle and spending habits. For example, vegans may not be impacted by the recent surge in egg prices, but they may be experiencing even bigger price increases for margarine. Commuters who drive to work every day are likely to encounter price increases for just about everything related to their cars, from insurance to repair and maintenance costs. While public transportation may offer some relief for those who use it, costs are still up compared to last year.

Furthermore, the impact of inflation is felt disproportionately by low-income individuals and families. Poorer households spend a greater portion of their income on unavoidable expenses like food and gas, which makes them more vulnerable to price increases.

Despite the Federal Reserve’s efforts to control inflation by hiking interest rates, certain sectors of the economy are not responding as well as others. While rate hikes worked for housing, causing prices to sharply decline, the service sector of the economy is still experiencing persistent inflation. This is driven by a continued imbalance between overall supply and demand, and it’s going to take the longest to bring down, according to New York Federal Reserve President John Williams.

One reason for the imbalance is consumer behavior, which is still out of whack from the pandemic. When the US economy shut down, consumers weren’t spending money on many services. When it reopened, consumers jumped at the opportunity to finally enjoy services and experiences. But surprisingly, that trend hasn’t abated, and people continue to shell out for services compared to goods. This type of inflation is harder for the Fed to contain since the driving force is rising wages. While it’s relatively easy to hike wages, it’s almost impossible to cut them. Some companies are still struggling to find skilled labor to fill vacancies and are having to raise wages as a result.

In summary, while inflation may be lower than it was a year ago, the impact is still being felt in many ways across different sectors of the economy. Everyone experiences inflation differently, and low-income individuals and families are often hit the hardest. While the Federal Reserve’s interest rate hikes have been effective in certain areas of the economy, the service sector is still experiencing persistent inflation, driven by rising wages, which is harder to contain.