12-month inflation stands at 3.4% as elevated price growth continues to bite

However, price trends in a host of categories within the CPI index are providing relief to the pocketbooks.

For example, rising gas prices are being contained in part thanks to rising U.S. production, Dutta said.

“So consumers think gas prices are good? No,” he said. “But they’re also not getting any worse.”

Meanwhile, car prices have started to fall year over year, with new cars averaging around $47,000, down 1% from last year and down 5.4% from the post-pandemic peak in December 2022. Used cars now average around $26,000, according to Kelley Blue Book, down 4% from a year ago and down 7% from the 2022 peak.

Alongside these declines, the overall affordability of cars has improved significantly. The number of weeks of income needed to afford a new light vehicle hit an all-time high in the winter of 2022, as measured by Cox Automotive/Moody’s Analytics.

The drop in car prices is emblematic of the broader decline in what are known as durable goods, said Eric Wallerstein, chief market strategist at Yardeni Research.

“Everyone bought durable products during the pandemic, but there’s only so much home appliances you can buy,” Wallerstein said.

Prices have been stable or declining in other important categories and items over the past year:

• Clothing: 1.3%
• Cheese: -3.3%
• Milk: -1.2%
• Fish and seafood: -2.1%
• Furniture and household supplies: -2.8%
• Smartphones: -9.8%

Despite these improvements, costs in the category of so-called services, from haircuts, car repairs, doctor visits, and products such as insurance have continued to rise alongside rents.

These other trends have put a damper on overall consumer sentiment. The latest University of Michigan survey of consumer sentiment fell to the lowest level in nearly six months, with concerns that inflation, unemployment and interest rates could all move in an unfavorable direction next year.

Another measure of consumer confidence, released by the Conference Board business group, also recently fell to its lowest level since July 2022.

In fact, inflation-adjusted earnings have continued to rise overall, although growth has slowed this year.

“It’s really a revenue-driven cycle, and revenue-driven cycles can take a long time,” Wallerstein said.

But many economists agree that consumers are still adjusting to the post-pandemic price environment. TracyBell, chief investment officer at First Horizon Advisors, said prices in most cases will not return to pre-pandemic levels as a result of the lingering effects of supply chain disruptions and other more structural changes in recent years.

If you look at food, prices for things like garbage, appliances, transportation, labor, all of that has gone up, she said. If you think about the chain of events needed to get food from the fields to the grocery shelves, all those costs along the way are added up and it all goes into the price.