Will Anger Over Inflation Soon Subside?

Inflation has come down sharply over the past year, but consumers remain grumpy because prices on many items, particularly in the food category, haven’t returned to pre-pandemic levels and may never.

On Thursday, Oct. 12, the U.S. Bureau of Labor Statistics reported that U.S. inflation leveled off to 3.7% in September compared to a year ago, down sharply from a 9.1% recent peak in June 2022.

Yet The Conference Board’s survey showed that U.S. consumer confidence fell to a four-month low in September. Dana Peterson, chief economist at The Conference Board, said, “Consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular. Consumers also expressed concerns about the political situation and higher interest rates.”

Inflation still remains above the Fed’s target rate of 2% and comes as Americans had enjoyed roughly a decade of low inflation leading up to the pandemic.

Economist Elizabeth Crofoot told CNBC that consumers are constantly reminded of the higher cost of living when they grocery shop or eat out and see fewer perks, such as free drinks for kids. She said, “It’s the combination of inflation and shrinkflation. As a consumer, you feel like you’re being nickeled and dimed at every turn.”

The job outlook remains healthy, with the Labor Department reporting on Oct. 6 that the U.S. economy added a stunning 336,000 jobs in September, with the unemployment rate remaining below 4%. Yet wages have been lagging behind inflation until recently.

Julia Pollak, chief economist at ZipRecruiter, explained to CNBC that wages from 2013 to 2019 grew faster than inflation, on average, but have only grown about as fast as inflation, on average, since the pandemic. Pollak said, “Workers have not seen their purchasing power expand each year. They’re just kind of treading water.”

The USDA in its September forecast predicted that U.S. food-at-home prices would finally moderate in 2024, with an expected 1.6% increase. For the current year, food-at-home prices are expected to climb 5.1%, following appreciation over the pandemic of 11.4% in 2022 and 3.5% in both 2021 and 2020.

However, continued labor market tightness is expected to add inflationary risks going forward.

A study from RBC Capital Markets concluded that while food prices are finally stabilizing as supply chain bottlenecks, shipping costs, and volatile prices of raw food commodities in part tied to the Ukraine war ease, food prices aren’t going back to pre-pandemic levels as the costs related to labor and climate change are passed on to consumers.

“As more people enter retirement and fewer enter the labor force (in the food sector) labor shortages will persist long-term,” Nathan Janzen, assistant chief economist at RBC, told the Toronto Star. “And extreme weather events will limit crop production putting more pressure on our supply.”

Speaking to the Wall Street Journal, Joe Brusuelas, chief economist at RSM, said economists typically don't view deflation or outright declines in prices as productive for an economy. Still, he added, consumers are “angry that the price level has reset higher on a permanent basis” for many items.