Lower inflation does not mean lower prices

The share of Americans' disposable income spent on food has hit a 30-year high of 11%, but much of that is due to restaurant spending, according to USDA data. While food spending as a share of disposable income has been declining overall for decades, restaurant-goers are paying more each year for a drive-thru burger or a sit-down meal with family. Restaurant prices have risen 28% since 2020, driven by higher wages and other overhead costs.

The latest inflation report alone shows that there are bargains to be had on ham and rice. In July, the price of ham fell by 2% compared to a year ago and the price of rice by almost 4%. Nevertheless, both prices are close to record highs. Frozen orange juice, the price of which has risen sharply in part due to diseased orange trees, is expected to fall significantly in price next year as a better harvest is expected in 2024.

Home prices are supporting the consumer price index, in part because high interest rates – which are supposed to curb consumer spending and lower inflation – are discouraging buyers and stalling new construction. The Federal Reserve is expected to cut interest rates in September, a move that is likely justified by the weakening labor market, according to Neel Kashkari, president of the Federal Reserve in Minneapolis.

Natural gas prices have fallen after a warm winter left large quantities unused. Electricity, on the other hand, is becoming more expensive, mainly due to massive investments in aging infrastructure and renewable energy.

Gasoline prices are volatile, fluctuating depending on the time of year and geopolitical tensions. Although the price per gallon of regular unleaded gasoline jumped as a result of the COVID-19 pandemic and is still higher than it was in 2019, prices this summer have landed at roughly the same levels as a decade ago.