“If wages keep growing quickly and price growth slows, people would be more able to afford things than they were before all of this,” Furman said. Jason Furman, an economics professor at Harvard University and former Obama administration economic adviser, said that ultimately what matters is how much wages rise compared to the rate of inflation. That’s a rapid clip, but wage gains still haven’t been able to keep up with inflation, eroding those gains for many workers. Average hourly earnings have picked up by 5.2 percent over the past year as workers have remained in high demand and businesses have struggled to fill open positions during the pandemic. If average wages are rising and outpacing the rate of inflation, that means that many Americans could afford to buy more even if prices are increasing. That means that things like rent, meals at restaurants, and medical care will likely continue to get costlier, albeit at a more moderate pace, economists say. Services, on the other hand, typically get more expensive over time and are slower to change in price. Used car and furniture prices, which both spiked during the pandemic, could also become cheaper as supply chains untangle and demand fades. Retail gas could conceivably continue to fall in the future, possibly below $3 a gallon, because fuel prices tend to be more volatile. Gas prices have been falling since peaking in June. A customer pumps gas in Monterey Park, California, on July 19. After peaking at above $5 a gallon in June, gas prices have been falling steadily for weeks, although they still remain nearly $1 higher than they were a year ago. Gas prices fell 7.7 percent from the month before, according to the Consumer Price Index report released on Wednesday. “But is there room for some prices to fall fairly dramatically in the direction of where they were in the pre-pandemic era? I think the answer to that is yes.”Īmericans have already seen some of those price declines happen. “Will prices go back to where they were in a pre-pandemic sense? Probably not,” said Michael Gapen, the head of US economics at Bank of America. Prices for many goods increased sharply during the pandemic as demand for goods soared, and economists say that certain categories could eventually see some price declines. If Americans can instead expect prices to rise at a stable rate around 2 percent, they can better plan ahead and make more sound decisions about their finances.īut just because prices as a whole will continue to rise doesn’t mean that everything will be this expensive forever. Decreased spending could lead to a slowdown in hiring and business investment, meaning that more workers could be laid off and wage gains could slow. If prices are declining overall, consumers could pull back on spending money because they expect costs will be even lower in the future. The central bank isn’t trying to bring prices down but rather rein in the rate of increase so they rise at a slower and more stable rate.įed officials target a low inflation rate partly because the central bank is wary of deflation - falling price levels - which can hurt economic growth. It just means that prices as a whole will level off and increase more slowly, rather than continuing to skyrocket. The Fed is taking aggressive steps to get inflation under control, but that doesn’t mean that prices overall are going to rapidly decline or return to pre-pandemic levels. But the United States is still a long way from the Federal Reserve’s goal of 2 percent annual inflation over time, and the bad news is that high prices for many goods and services are likely here to stay for a while. The slowdown last month - driven largely by falling fuel prices - is a significant step in the right direction. The monthly inflation rate was also flat, meaning that overall, prices didn’t pick up from June. Inflation is on the way down: New data released Wednesday showed that prices rose 8.5 percent from a year ago, but that’s an improvement from June, when prices climbed 9.1 percent.
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