Inflation might wane, but prices can stick

| April 21, 2023

The March numbers suggest that inflation might be easing, with an annual rate of increase at 5% for the month. That’s down from 6% in February and below the expected rate of 5.3%.

Despite the positive headlines, a word of caution. I don’t envy Jerome Powell and the other Federal Reserve leadership, who have been trying to tame extremely high inflation while not overcorrecting so much they contribute to a recession. I’ve written about this before, but they’re really threading the needle here. And now they’re dealing with the recessionary effects related to the Silicon Valley Bank collapse, which might hinder the Fed’s ability to increase interest rates.

But for now, the news is OK. Note that I’m talking about the “headline inflation” number. Some people consider the “core inflation” number a more accurate gauge of inflation trends. The difference between the two is that the basket of goods used to calculate the headline inflation figure includes food and energy prices, while core inflation’s basket doesn’t.

I don’t know about you, but food and energy make up a decent part of my budget. More on that in a second. But the reasoning is that food and energy prices rise and fall more dramatically and change more often than for other categories, which can distort the true nature of inflation’s overall direction.

The Fed tracks a figure called core PCE (personal consumption expenditures) inflation. The latest figure available as I write this is for February, up 4.6% compared with a year ago. That’s a continuation of a steady, generally downward trend from October 2022 and in line with economists’ predictions of lower inflation for this year. The decline isn’t as dramatic as the headline number, but we’ll take any good news we can get.

Here’s the thing about these general inflation numbers, though. Inflation hits different people in different ways. Inflation, like politics, is local. If you’re putting your kids through college, you’re hit harder by tuition increases. If your family is coping with health issues, you’re hit harder by medical care increases. If you drive a long distance to work, you’re hit harder by increases in energy costs.

Another thing: What goes up doesn’t always go down. Take the coffee shop I frequent. The store periodically posts a sign saying the price of coffee beans has gone up, and they’re so sorry but they’ll have to increase prices. Now, coffee prices fluctuate, but have you ever seen the price of a cup of coffee go down? It’s the same with chicken wings: Prices decreased between January 2022 and January 2023, but I didn’t notice menu prices at my local chicken wing restaurant decreasing.

So the latest numbers indicate a moderating economic situation, but storm clouds of a recession are still forming. And meanwhile, until competition provides an incentive to lower prices, don’t expect relief from the higher prices you’ve been suffering for some of the things you love.