Current:Home > InvestInflation has cooled a lot. So why do things still feel so expensive? -Ascend Finance Compass
Inflation has cooled a lot. So why do things still feel so expensive?
View
Date:2025-04-17 20:40:04
Inflation has cooled significantly in recent months — but you may still find yourself paying more at the grocery store or the doctor's office than before the pandemic.
It's a big reason why people are unhappy about the economy, as this recent Gallup poll revealed, even if by many measures the economy is actually doing quite well.
So what does it actually mean when inflation is easing?
Simply put, falling inflation, or "disinflation," means prices are rising more slowly than they had been. That's a good thing. Grocery prices have climbed less than 2% in the last 12 months, compared to a 12% jump the previous year, which gave many people sticker shock at the supermarket.
What many people want to see, however, is "deflation," when prices actually come down. Falling prices are not generally good for the economy, though.
Here are four things to keep in mind.
Don't Dis the Disinflation
Inflation has fallen sharply — from a peak of 9.1% last year to just 3.1% in November.
That's giving the Federal Reserve a lot of comfort, even though policy makers still want inflation to ease more.
On Wednesday, the Fed signaled it may start cutting interest rates next year, triggering a big rally in the stock market. Fed officials are aware, though, that many Americans aren't celebrating just yet.
"Most Americans are not just looking for disinflation," Fed governor Lisa Cook said last month, during a speech at Duke University. "They're looking for deflation. They want these prices to be back where they were before the pandemic."
Cook said she understands that sentiment and hears similar complaints from her own family.
But deflation is not the Fed's target. The central bank actually prefers rising prices, so long as they rise slowly enough that people don't have to worry about them.
Why falling prices are not necessarily good
Falling prices may sound like a good thing, but widespread price cuts — what economists call "deflation" — is typically a symptom of economic distress.
Japan has struggled with deflation since the early 1990s, leading to years of subdued economic growth.
The U.S. did experience deflation in the early months of the pandemic, and it wasn't pleasant. Prices plunged because people were stuck at home, unable to go shopping or out to restaurants. Sure, gasoline was cheap, but only because most people weren't driving anywhere.
If deflation becomes entrenched, it can be a drag on the broader economy. While it's always fun to get a discount, when prices are steadily falling across the board, it tends to discourage consumption — which is the biggest engine of U.S. economic growth. Why buy a washing machine today if it's going to be cheaper next year?
That's why the Fed's goal for inflation is not zero but 2%, with prices rising fast enough to avoid deflation but slowly enough that most people don't spend much time thinking about it.
Some prices are falling
The inflation rate — 3.1% in November — tells us that overall prices are still rising.
But that figure is compiled from thousands of individual prices, some of which are going down while others are going up.
Over the last year, for example, the price of eggs has fallen more than 22%. Air fares have dropped more than 12%. And the price of smartphones has fallen by 14%.
Some of these price declines reflect the unwinding of earlier price increases. Egg prices, for example, soared when avian flu hit the country's hen houses, then fell back to earth as laying flocks recovered.
Other prices are adjusted for quality improvements. A smartphone today might sell for the same price as one did two years ago, but if today's phone has a much better camera, that might be counted as a price cut.
In any given month, some goods and services will show "deflation," but that's usually offset by rising prices of other items.
Rising wages will help
Inflation is particularly unsettling when the cost of living rises faster than people's paychecks, and families struggle just to maintain their standard of living, let alone get ahead. That was the case for many people in 2022, when inflation hit a four-decade high.
For the last seven months, though, average wages have risen faster than prices. If that continues, workers should be able to gain ground.
"That might help improve the mood of people," Fed Chair Jerome Powell said this week.
Of course, most people tend to think of wage increases as a reward for their own hard work, while price increases are something that's inflicted on them.
Still, a trend in which wages are outpacing inflation should produce a happier outcome over time — and eventually, perhaps, make people feel less grumpy about the economy.
veryGood! (674)
Related
- Woman dies after Singapore family of 3 gets into accident in Taiwan
- Maine storm has delayed a key vote on California-style limits for gas vehicles
- A Turkish parliamentary committee resumes debate on Sweden’s NATO bid
- A cyberattack blocks Albania’s Parliament
- Off the Grid: Sally breaks down USA TODAY's daily crossword puzzle, Triathlon
- Alabama woman pregnant with 2 babies in 2 uteruses gives birth ahead of Christmas
- Taylor Swift spends Christmas cheering on Travis Kelce as Chiefs take on Raiders
- Tis the season for giving: A guide for how to give, even a little
- Pregnant Kylie Kelce Shares Hilarious Question Her Daughter Asked Jason Kelce Amid Rising Fame
- After a brutal stretch, a remarkable thing is happening: Cryptocurrencies are surging
Ranking
- Off the Grid: Sally breaks down USA TODAY's daily crossword puzzle, Triathlon
- You Don't Think AI Could Do Your Job. What If You're Wrong?
- Towns reinforce dikes as heavy rains send rivers over their banks in Germany and the Netherlands
- Whisky wooing young Chinese away from ‘baijiu’ as top distillers target a growing market
- Krispy Kreme offers a free dozen Grinch green doughnuts: When to get the deal
- African Penguins Have Almost Been Wiped Out by Overfishing and Climate Change. Researchers Want to Orchestrate a Comeback.
- 32 things we learned in NFL Week 16: Christmas gifts arrive early – for some teams
- 1000-Lb. Sisters' Tammy Slaton Breaks Down in Tears Over Husband Caleb Willingham's Health Update
Recommendation
Who are the most valuable sports franchises? Forbes releases new list of top 50 teams
Morocoin Trading Exchange: The Difference Between NFA Non-Members and Members
Kourtney Kardashian's Photo of Baby Boy Rocky Proves Christmas Is About All the Small Things
Fantasy football winners, losers: Panthers' DJ Chark resurfaces to attack Packers
Pressure on a veteran and senator shows what’s next for those who oppose Trump
Turkey steps up airstrikes against Kurdish groups in Syria and Iraq after 12 soldiers were killed
'The Color Purple': Biggest changes from the Broadway musical and Steven Spielberg movie
Pope Francis denounces the weapons industry as he makes a Christmas appeal for peace in the world