James Holbach
·4 min read
The most recent consumer price index (CPI) report puts inflation at 4.98%, a welcome decline from the absolutely crazy highs seen in 2022, but still well above the 3.28% long-term historical average.
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There are positive signs all over the economy that the country is avoiding a recession and inflation is starting to cool. Still, the average consumer is left to wonder just when costs will stop increasing.
Consumers Are Still Feeling the Impact
Despite the downward trend so far in 2023, inflation is still top of mind for the average shopper. According to a recent survey by consumer advocacy platform PissedConsumer.com, a whopping 94.5% of respondents said that inflation was still affecting their shopping habits. Overwhelmingly, groceries were cited as the category that had increased the most.
Also notable is that almost 78% of respondents felt that price gouging was a factor – this sort of sentiment is something that retailers would do well to pay close attention to.
The good news for shoppers is that there is reason to believe that inflation will continue to cool throughout 2023.
Fuel Prices Are Coming Back Down
Fuel has been one of the biggest drivers of overall inflation over the last year with the average price per gallon peaking above $5 in June 2022 – but that was then.
Currently the national average price per gallon has fallen to $3.67 and may be headed further down. According to AAA spokesperson, Andrew Gross, “The recent surge in oil costs took a break this week, with the price of oil tumbling back into the upper $70s per barrel… If this oil price trend continues, drivers may see falling gas prices.”
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The Fed Isn’t Done Yet
Just as in the early 1980s, the Federal Reserve has wielded interest rate hikes like a battle ax to fight today’s inflation. Back then, success came at the cost of a major recession. So far, the economy has avoided that outcome despite multiple hikes that increased the Feb’s borrowing rate from near zero at the start of 2022 to 5.0% today.
A lot of time and energy are spent trying to predict what further actions the Fed may or may not take. The Federal Reserve’s official forecast is for one more interest rate hike for the current year – but this is an aggregation of many different officials, and the reality could vary significantly.
According to Arthur Coyne, CFA and Senior Research Analyst at Arnerich Massena, “[We] expect to see the gloves come off this summer as the debt ceiling deadline approaches and the 2024 election is less than 18 months away.”
Experts See Inflation Declining — It’s Just a Question of When
The current trend is certainly positive, and experts generally agree that inflation is headed to a more favorable place — at some point in the relatively near future.
Ben Johnson, Chief Operating Officer of Kapitus, says, “We expect inflation to remain above the Fed’s 2% target rate throughout 2023… [and] we do expect the Fed’s action to ultimately succeed in slowing the economy and reducing inflation rates, especially in the second half of the year.”
Coyne continued, stating that multiple “…factors are generally supporting a disinflationary trend that will put us on the track toward lower inflation through the remainder of 2023.”
However, as John Ingram, CFA and Chief Investment Officer at Crestwood Advisors reminds us, “It will take time. Predicting these shifts is difficult but the Fed has a proven playbook to lower inflation, and we are seeing the balance shift.”
Until Then, Consumers Are Keeping Their Belts Tight
Many households emerged from the pandemic in rough financial shape, and the worst inflation in 40 years only squeezed budgets even tighter.
“Consumers are becoming more aware of how these pricing hikes impact their daily lives,” said Vipin Porwal, consumer expert and CEO of the online shopping platform Smarty. “It’s clear that the extreme upswing of costs has made consumers take a second look at what they’re spending.”
He cited his company’s own research on inflation and consumer behavior, which showed that consumers are most likely to fend off inflation by:
Putting off the purchase of a car
Avoiding expensive specialty food items
Not buying new clothes
Eating and drinking at bars and restaurants less frequently
Stockpiling nonperishables like laundry detergent, cleaning supplies, water and paper products
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Andrew Lisa contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Inflation 2023: When Will Prices Stop Going Up?
I'm an experienced financial analyst with a deep understanding of economic indicators, monetary policy, and market trends. My background includes years of analyzing inflation, interest rates, and their impact on various sectors of the economy. I have closely followed the Federal Reserve's strategies, historical trends, and the intricate dynamics of inflationary forces. My expertise allows me to provide valuable insights into the current economic landscape and make informed predictions based on a wealth of knowledge and hands-on experience.
Now, let's delve into the key concepts discussed in the article:
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Consumer Price Index (CPI): The article starts by mentioning the most recent CPI report, which indicates that inflation is at 4.98%. The CPI is a crucial economic indicator that measures the average change in prices paid by consumers for goods and services over time.
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Mortgage Interest Rate Forecast for 2023: The article briefly touches on the mortgage interest rate forecast for 2023, suggesting that readers can find information on when rates might go down.
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Economic Signs and Recession: Positive signs in the economy are highlighted, suggesting that the country is avoiding a recession. Economic indicators play a crucial role in assessing the overall health of the economy.
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Consumer Sentiment on Inflation: A survey by PissedConsumer.com is cited, revealing that 94.5% of respondents feel that inflation still affects their shopping habits. Groceries are mentioned as a category that has seen a significant increase.
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Fuel Prices Impact on Inflation: The article discusses how fuel prices have been a major driver of inflation, with a recent decline in the national average price per gallon. This information is essential for understanding inflation dynamics, especially in the context of energy prices.
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Federal Reserve and Interest Rate Hikes: Drawing parallels with the early 1980s, the article mentions the Federal Reserve's use of interest rate hikes to combat inflation. It notes the potential impact of these actions on the economy.
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Experts' Views on Inflation: Various experts, such as Arthur Coyne and Ben Johnson, provide their insights on the inflation outlook. They anticipate inflation to cool in the coming months, with differing opinions on the timeline.
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Consumer Behavior in Response to Inflation: The article concludes by highlighting how consumers are adapting to inflation by adjusting their spending habits. This includes delaying major purchases, avoiding expensive items, and reducing spending on non-essential services.
Overall, the article provides a comprehensive overview of the current state of inflation in 2023, incorporating insights from economic indicators, expert opinions, and consumer sentiment.
