Yahoo Finance Inflation is easing and a risk of recession is fading. Why are Americans still stressed?
Rachele Sossong remembers when she could leave the store with a full shopping cart for $100 or less to feed her family of four. Now, that same cart costs $200 or more.
“I personally spend over $1,000 each month on groceries for my family, and that is even after deals and discounts that I find,” said Sossong, 34, mother of two and wife of a Marine veteran.
When prices started rising on household products like toilet paper, paper towels and cleaning supplies in late 2020, they never seemed to stop, she said.
She’s right. Prices for household cleaning products have risen almost 24% since February 2020, according to the Bureau of Labor Statistics, or BLS.
Her experience isn’t unique. Across America, people feel squeezed. It’s no wonder. Since February 2020, overall prices have jumped nearly 17.5%, which means what cost you $100 before the pandemic now costs you about $17.50 more.
From big-ticket items like homes and cars to everyday purchases like gas and groceries, people can’t catch a break.
“It happens every day,” said Marvinette Hale, 48, a mom of three and couponing blogger from Pennsylvania. “You look at something, and the next day, the price goes up.”
Just because annual inflation has cooled from a four-decade high of 9.1% in June 2022, that doesn’t mean prices have dropped. In fact, prices are still rising, last at a 3.2% clip in July.
Just take a look at gas. A gallon of regular unleaded has dropped from the record $5.016 a gallon we saw June 14, 2022, but it still costs about $1.50 more than 2020 and has been edging higher.
Bread, too, has risen − about 28% since 2020. So that package of plain bagels that once cost $3.45 is now about $4.79.
Don’t forget the roof over your head. In July, rents were just $16 shy of their record $2,054 hit in August 2022, listings platform Redfin said, and home prices continue to defy expectations to inch up again. The median existing home price in July was $406,700, up 1.9% from a year ago and notching a record high price for any month of July, said the National Association of Realtors (NAR).
Why won’t some prices fall?
There are a lot of reasons high prices have stuck around.
Extreme weather has helped drive up prices of fruits, vegetables and nuts, and the war in Ukraine has kept a floor under grain prices.
Then there’s rising gas prices because of a drop in supply and a worker shortage that has boosted wages at the fastest rate in decades. Gas and labor affect the cost of everything because they’re used to transport every good and every person everywhere across the country. So even as prices of some commodities like lumber and metals have decreased, businesses continue to feel the constraints of inflation and are passing on the pain to customers.
5 ways to save: Scarred by two years of high inflation, this is how many Americans are surviving
How are high prices affecting consumers?
At first, businesses easily passed on costs to customers because they didn’t push back. With fistfuls of dollars from pandemic savings, people spent when the economy reopened and have remained resilient even as savings have dwindled.
Procter & Gamble, maker of everything from Tide to Oral-B toothbrushes, Head & Shoulders shampoo, Pepto Bismol, Pampers diapers and Old Spice deodorant, raised prices multiple times over the past few years and has seen scant pushback.
But two years of elevated inflation have finally taken their toll. Americans are more cash-strapped and feel so exhausted by inflation they can’t revel in the labor market's continued strength, rising wages, easing inflation, fading risks for the long-anticipated recession, or President Joe Biden touting the strength of "Bidenomics."
Americans are tapped out because even with wages growing at the fastest rate in decades, inflation ran faster. Only earlier this year did workers finally edge ahead of inflation. So, while Americans continue to spend, they’re being more thoughtful about what they’re buying.
"They’ve cut back or stopped spending on items with large price increases and are switching from more expensive to more affordable items,” said Joanne Hsu, director of the Surveys of Consumers at the University of Michigan.
And they’re turning to credit cards. Credit card debt rose to a record $1.03 trillion at the end of June, the New York Federal Reserve said. The timing couldn’t be worse for many – the average bank-issued credit card interest rate touched a record high 20.68% this year, the NY Fed said.
On a $5,000 balance at that rate, you’ll be paying about $25 more a month than in 2020, when the NY Fed said rates averaged 14.71%.
What price increases do people notice most?
The prices rankling Americans most: food and gas.
Food: Aisle after aisle, Sossong gets sticker shock. Even ramen noodles, a cheap staple when she first moved out on her own, are ticking up.
It’s no wonder. Grocery price increases have slowed over the 12 months to July to 3.6% from 13.5% in August 2022, but they’re still rising more than twice as fast as in 2019, BLS data show.
With groceries so expensive, Sossong says, sometimes going through the drive-thru is cheaper than cooking even though the cost of eating out is climbing, too. Annual restaurant prices rose 7.1% in July, more than twice the roughly 3% pace in 2019.
“You can go to Burger King, get two Whoppers for $5,” said Marshal Cohen, chief retail adviser at consumer research firm Circana. “If you made it at home, you would need to buy the meat, the buns, lettuce, onion and tomato and the special sauce and then make it."
Gas: Gas at $3.82 is sharply lower than the June 14, 2022, record of $5.016 but still about $1.50 higher than it was before the pandemic.
Of the more than 1,000 people researcher Numerator polled in August, 70% said rising gas and fuel prices worried them. That’s up from 61% the month before and the highest level all summer. Sixty-five percent said high gas prices affected their ability to afford other things, Numerator said.
"We certainly felt the rising gas prices this summer as we planned summer trips with the kids," said Chicagoan Andres Olarte, who drove to Niagara Falls with his wife and two kids. "There's a sticker shock seeing gas over $5 (a gallon) at some Chicago gas stations."
Why is pet food so expensive?
Hale said the cost of feeding the fish in her pond and putting out bird food each have tripled, too.
Pet food prices jumped 10.6% annually in July, more than double the pre-pandemic pace. Since February 2020, overall prices have risen about 22.5%, BLS data showed.
A double whammy: Housing and car prices skyrocket
Housing prices have already skyrocketed amid a supply shortage, with the median existing home price in July at $406,700, the highest ever for any July, NAR said.
Mortgage rates have climbed above 7% to the highest level since 2001, in line with the Fed’s aggressive 5-percentage-point interest rate hikes since March 2022 to tame inflation. The Fed doesn’t control mortgage rates, but they tend to follow the Fed’s moves in a ripple effect.
Kethy Ayers, 43, who moved to Florida from Ohio with her husband and 11-year-old daughter in 2021, has felt the frustration firsthand. Her family sold their 2,902-square-foot house in West Chester, Ohio, for $265,000, hoping to buy a new home in Sarasota.
But smaller houses sell for nearly $500,000 there. She said she and her husband couldn’t scrape enough money together, so they are renting a place for $2,700 a month, more than twice their old mortgage.
Prices and mortgage rates kept rising, and now, homeownership is even further out of the family’s reach.
Something similar is happening to Sossong’s husband, but in the car market. He has been shopping for a new truck for two years, to no avail. New truck prices have ballooned about 23% since 2019, BLS data show. Before the pandemic, the average paid for a full-size pickup was $49,534, car site Edmunds.com said. By the end of 2022, the price had swelled to $61,076. The average monthly payment for a new car also rose to a record $733 in the three months to June, it said.
Even though supply has bounced back since the depths of the pandemic snarled supply chains and prices are dipping, “rising interest rates, and their impact on affordability, remain strong headwinds,” said Charlie Chesbrough, senior economist at Cox Automotive.
The average annual percentage rate in the three months to June was 7.1%, the highest since the end of 2007, Edmunds.com said.
Sossong’s husband is proof of that. “Every time he finds something he likes, the payments are going to be a little too high,” she said.
Will things get better?
Brenda Anz, 50, says she says she can measure the rate of inflation in the growing number of people flocking to her free couponing classes in San Antonio. She started couponing 13 years ago to stretch her husband’s paycheck as a police officer so she could stay at home and raise her three kids.
“We knew after the (COVID-19) virus, things were going to be hard, but we are talking years later now,” Anz said, and saying aloud what everyone is wondering: “Why aren’t the prices coming down?”
There are some positive signs, even if only on paper and not necessarily felt daily by people. Inflation is cooling despite what people feel, the economy remains surprisingly strong, and wages are finally outpacing inflation, said Sofia Baig, economist at business intelligence company Morning Consult.
That has all helped more people have money left over after expenses at the end of the month compared with a year ago, when inflation was at a 40-year high, said a Morning Consult poll.
Still, the outlook is complicated. "Savings have been depleted since their run up during the pandemic, meaning many consumers have less of a buffer in case of an emergency expense or an economic downturn,” Baig said.
“What appears to be happening is every time consumers start to feel positive in one sector, like falling grocery prices, something else appears, like a spike in gas prices, putting a speed bump in their way,” said Mallory Newall, vice president of public polling at Ipsos. “Unless and until there is a sustained run of positive economic news, we are unlikely to see Americans feeling significantly better about the economy.”
This article originally appeared on USA TODAY: Inflation, recession risk easing, so why are Americans still stressed?
