Since inflation peaked at 9.1% during the height of the COVID pandemic, it has eased to 2.6% by October—so why do prices still feel so high?

Well, what is inflation? Inflation is the rate at which the average price of goods and services rises over time, measured as a percentage. Inflation can occur when there is too much demand for goods, rising cost of production, or future planning, known as built in inflation. If inflation goes below 0%, it means that the cost of the goods has lowered, but if it drops from 6% to 2%, that means that the price is rising slower.

Starting with the COVID-19 pandemic in 2020, inflation fluctuated significantly: from 2.5% in January 2020 to a low of 1.4% in January 2021, then soaring to 7.5% in January 2022 and hitting its June high of 9.1%. Since then, inflation gradually slowed, reaching 6.4% in January 2023 and 3.1% in 2024. Despite this slowdown, cumulative inflation since 2020 totaled 21.2%, meaning $100 in 2020 now has the buying power of $121.

Meanwhile, wages grew by 26.3% over the same period, outpacing inflation. On the surface, this suggests economic resilience. However, many Americans still feel financially strained, as wages haven’t fully offset the persistent high costs of essential goods. While gas and food prices have moderated, housing costs, which surged by 8.1% in 2023, only recently slowed to 4.9% in October 2024.

The gap between improving economic indicators and consumers’ experiences highlights the ongoing challenges in recovery. While inflation has slowed, prices remain elevated compared to pre-pandemic levels, leaving many Americans feeling the strain. As the new year approaches, prioritizing solutions that address these pressures will be key to bolstering financial stability and consumer confidence.

Sources: https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm