Inflation is slowing down, so what’s keeping prices high? Here’s what experts say

After a tumultuous few years, there might be a light at the end of the inflation tunnel.

Consumer prices increased just 3.7% in the 12-month period ending in August, according to the Bureau of Labor Statistics’ latest data, released Sept. 13. Between July and August, prices climbed only 0.4%.

That’s welcome relief after record-breaking inflation followed the COVID-19 pandemic. This time last year, for example, inflation was still running hot: In the 12-month period ending in August 2022, prices climbed a whopping 8.3%.

But as inflation has cooled, prices have yet to return to their pre-pandemic levels.

Take coffee, for example.

In January 2020, ground roast coffee was about $4.17 per pound, according to BLS data. In July 2022, when inflation was near its highest, this price jumped to about $6.11. Now, even though inflation has dropped a considerable amount, coffee is about $6.09 per pound, which is still significantly higher than 2019.

So, why are prices still so high? And will they ever come down?

Here’s what to know.

Disinflation isn’t the same as deflation

Prices still haven’t fallen to their pre-pandemic levels

Although inflation is moving in the right direction, consumers are feeling squeezed by still-high prices in some areas, including groceries.

Data from the BLS shows that average grocery store prices are mostly unchanged over the past six months despite slowdowns in inflation. This plateau comes after sharp increases during the pandemic, according to a post on X, formerly known as Twitter, from Justin Wolfers, senior fellow at the Brookings Institute and Peterson Institute of Economics.

Experts pointed out that while this data is promising for the economy, consumers are still feeling the pocketbook pressure. Indeed, food prices in particular are volatile and subject to irregular price changes, but some economists said they still expected to see a price drop after pandemic-era highs.

“Food commodity prices are volatile but tend to revert to trend, i.e. large increases are followed by decreases,” Greg Ip, chief economics commentator for The Wall Street Journal wrote on X. “So a lot of folks (incl me) who saw prices go up 15-20% thought they’d go down, at least partially.”

Will prices ever come back down?

The short answer: yes, but not to pre-pandemic levels.

Already, huge price swings, especially in categories like food and energy, have normalized, according to Baker.

“Along the items where people saw real big increases, and again, these are overwhelmingly food and energy, the prices have come back down. Not necessarily to where they were before the pandemic, but they did fall considerably,” Baker said.

The other pieces of the equation are wages and production costs.

Average hourly earnings are up about 18% since before the pandemic, according to BLS data. And while that increase has given people more purchasing power to combat inflation, it has also driven up production costs, which are reflected in retail prices.

Unsurprisingly, bringing prices back down is another part of the economic recovery equation that is reliant on slow-moving change, which takes us back to the Fed.

In the meantime, though, consumers shouldn’t be too worried, as wage increases have outpaced enough costs to at least soften high prices, according to Baker.

“Food prices, for example, those have outpaced wages, but again, over time food prices have fallen relative to wages,” he said. “If their wages have outpaced other prices and (are a) little bit behind food, then it’s in general not gonna be a big deal.”

This story was originally published September 15, 2023 at 6:30 AM with the headline "Inflation is slowing down, so what’s keeping prices high? Here’s what experts say."

Moira Ritter

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Moira Ritter covers real-time news for McClatchy. She is a graduate of Georgetown University where she studied government, journalism and German. Previously, she reported for CNN Business.