Inflation is abating, but high prices continue to put pressure on households

The consumer price index (CPI), a widely known measure of inflation in the United States, increased 4.9 percent over the year in April, according to the latest reading. Its continued deceleration from a high of 9.1 percent in June 2022 was a welcome development.

While the news is positive overall for the economy, inflation still feels too high, especially for some households. That’s what 124 respondents to an April Worker Experience survey told the Minneapolis Fed.¹

Food and other basics keep eating into income

When asked about their experiences with recent prices, almost all respondents reported paying more for groceries compared with a month earlier. Twenty-seven percent said they only saw slight increases, but for 68 percent the grocery bill was much higher (Figure 1).

“Increased food prices have us adjusting our budget numbers constantly and dipping into savings just to cover the essentials,” shared a nonprofit worker in Detroit Lakes, Minnesota. Similarly, a Bismarck, North Dakota, resident said she was only able to buy half the groceries she used to for the same cost.

Groceries are not the only items shrinking people’s purchasing power—that is, how much a dollar can buy. Eighty-three percent of poll participants said they’ve continued experiencing more expensive gasoline prices, and electricity bills were higher for 77 percent over the last few weeks.

Even though prices at the pump have come down some in the last few months, they are still keeping some families from getting behind the wheel as much as they used to. A northern Minnesota mother of two teenagers said they have cut down on leisure travel “to avoid using gas unnecessarily.” She also keeps the thermostat set low and hangs clothes to dry to save on energy costs.

A foundation of unusually higher prices

Survey respondents expressed a general sense of stress and frustration. “Inflation has been tough, with prices going up on almost everything,” shared a Minnesota educator. “It’s hard to save or even get by without using credit cards and getting more in debt.”

Price increases have been lower compared with last year—and that is good—but those smaller increases are happening over a foundation of two years of exceptionally high inflation, making it difficult for many people to feel relief. Economy watchers tend to look at inflation changes over the year, a helpful way to understand the long-term trends. But a look at changes over the last two years may provide better insight into why inflation still feels so high for so many, even as the annual rate has cooled.

Since inflation first spun off its 2 percent target in April of 2021, the price index for all items as reported in the CPI has increased by 14 percent, and the measurements for what most people consider essential items and services are even higher. The “food at home” category is 19 percent above what it was in April 2021 and household energy is 21 percent above. While gasoline prices are down from last June—when they were 70 percent above what they were in April 2021—they are still 26 percent higher than two years ago.²

These essential items persistently contributed to the rising price index over the last two years (Figure 2). Gas prices have begun contributing less to overall inflation, but the shares for food and energy remain stubbornly elevated. Together, food, gasoline, and household energy costs account for 22 percent of the two-year change in inflation as of the latest report.

Shifting priorities

Food prices have led some families to tighten their belts. “We are watching what we purchase at grocery stores for food and household items,” shared a resident from Williston, North Dakota. “We substitute items that are too expensive or simply go without them.”

Slightly over a third of respondents said they had reduced grocery purchases in response to their tighter budgets, 16 percent said they had made substitutions (Figure 3). Almost three-quarters of respondents said they had reduced their consumption of food outside the home. An administrative assistant and her husband from Hazelton, North Dakota, said that they stopped dining out. “We thought it would help us save money, but it is getting just as costly to cook at home now.”

More discretionary items may be staying behind on the shelves as people shop. “We sacrifice certain household items such as not purchasing fabric softener or sheets,” shared a preschool teacher from Callaway, Minnesota. “We have 3 small children, so their basic needs come first.”

Responses also show that for some, the ability to put money away for the future may be dwindling. “I haven’t been able to apply any extra funds into my savings account for unexpected emergencies,” shared a cleaning services worker from Fargo, North Dakota. Households are also reaching into their savings to make ends meet. A family in Detroit Lakes, Minnesota, said, “Increased food prices have us adjusting our budget numbers constantly and dipping into savings just to cover the essentials.”

The road ahead

Respondents widely believe that prices—particularly for food and fuel—will continue to rise.

A social worker from Wadena, Minnesota, highlighted that the atypically high inflation over the last two years “has made things very stressful.” Knowing with certainty what the future holds is difficult, and as monetary policy actions continue to do their work to tame inflation, consumers hope for stress levels to follow suit.

Endnotes

1 These survey results were not obtained from a random sample of the general population but from a growing list of worker contacts who have shared their experiences with the Minneapolis Fed. They should be interpreted as a systematic collection of anecdotes and qualitative insights about individuals’ experiences rather than a quantitative estimate.

2 Percentages indexed to April, 2021, and calculated using published Bureau of Labor Statistics CPI-U, non-seasonally adjusted numbers.