Inflation is slowing. Here’s why prices still aren’t dropping – NBC 5 Dallas-Fort Worth

• Historical data suggests that a key driver of falling prices is slowing consumer spending.
• Although nearly half of Americans say they are worse off financially than they were five years ago, they continue to spend.
• Retail sales rose 2.1% year-on-year in the first quarter of 2024 and consumer spending jumped in February and March.

Jenn Lueke, 27, is a Boston-based recipe developer who creates online content showing people how to eat well on a budget.

“I think it’s no secret that prices are going up right now in almost every area,” Lueke told CNBC.

About two-thirds, or 65%, of U.S. adults surveyed by CNBC/SurveyMonkey this spring said inflation was the main driver of their financial stress. The same part said they were living paycheck to paycheck. Nearly half feel they are in a worse financial situation than five years ago.

In January of last year, Lueke started a social media series in which she took a $50 to $75 grocery list and turned it into five different recipes for their families. She had the idea to show people that they can still eat well while reducing their grocery costs.

“It’s really hard. I’m not here to share toxic positivity about how to shop on a budget,” Lueke said. “I’m just trying to make people feel like they can have a little bit of control, at least in this area of ​​their food costs.”

Disinflation, deflation and the “monetary illusion”

“I think Americans are a little perplexed when they see the reports of falling inflation, and yet they don’t notice any drop in their prices,” said Lindsay Owens, executive director of the think tank non-profit Groundwork Collaborative.

There is an important difference between a slower rise in inflation – a phenomenon called disinflation – and a reversal in inflation, which would cause prices to fall. Economists call the latter deflation, which is generally associated with a declining economy and potential recessions.

Historical data shows that prices rise much more easily than they fall. When they go down, it’s usually because people are spending less, which is not the case now. Retail sales rose 2.1% year-over-year in the first quarter of this year and consumer spending jumped in February and March.

“This cycle is a concept called money illusion,” said Sabrina Romanoff, a clinical psychologist.

“People who have illusions about money … do not take into account the level of inflation in an economy,” she said. “So they wrongly believe that a dollar today is worth the same as it was last year.”

Experts have expressed concern about possible “pockets of problems” as total credit card balances in the United States hit a record high of $1.08 trillion in the third quarter of 2023. Nearly half , or 49%, of Americans with a credit card say they carry a credit card. balance from month to month, according to a November 2023 survey from Bankrate.

Wage increase data may also seem inconsistent with consumer experience. Wages have been increasing since January 2022, but the rate of increase is slowing and, on average, is just keeping up with price increases. A Bankrate analysis estimates that the gap between inflation and wages will not fully close until the fourth quarter of 2024.

“For many Americans, wage growth is long overdue,” Owens said. “They have spent years, even decades in some cases, with stagnant salaries or small increases.”

Watch the video above to learn more about why prices are unlikely to drop.