July’s consumer price index report finally showed a sign of potential relief – inflation ticked up less than expected from a year ago, and was flat on the month, meaning that a basket of items and services generally stayed the same price.
But some items have fallen, on a monthly and weekly basis, potentially signaling that inflation has passed its peak and may be cooling off.
This is welcome news to consumers who have been squeezed by higher prices and are looking for any sign of relief. Some of the top items whose prices have come down include eggs, milk and gasoline.
“Fuel inflation was really big and that’s going to have a pretty meaningful impact on consumers and their spending patterns,” said John Leer, chief economist at Morning Consult. “I think that’s actually a good thing for the economy.”
Grocery aisle prices down
Many of the items that have declined are tied to food and energy, often the most volatile costs that consumers deal with.
Grocery store staples have dipped. Large white eggs cost, on average, $2.14 for a dozen, during the week of Aug. 15-21, according to the USDA. That’s a whopping 60 cent drop from the prior week, when the average was $2.74 per dozen.
The average price for a half gallon of milk has slipped to $1.95 from $2.05 during the period of Aug. 8-12, and the average price of butter fell to $3.67 from $4.68 in the same timeframe, per USDA data.
Chicken breast prices also slipped on a weekly basis during the period of Aug. 8-12, but other parts of the chicken are declining as well – chicken wing prices have been trending down and are now cost less than they did pre-pandemic, according to data from the Department of Agriculture.
Oil pulled down fuel prices
Outside of food, declines can be seen in consumer goods and services related to energy.
This is because oil prices are often subject to big price swings as the balance between supply and demand shifts. This year, the war between Russia and Ukraine threw that balance off and the price of oil spiked when countries stopped buying from Russia, a major exporter.
However, oil prices have come back down, lowering the cost of energy and particularly gasoline. The national average for a gallon of regular gasoline is $3.918 as of Friday, according to AAA. While that’s higher than it was a year ago, it’s a solid decline from the $4.495 consumers were paying for gas a month ago, and a sharp drop from the recent high of $5.016 hit in June.
That also potentially affected another area of the economy that saw a price dip month over month – airfares. The average price of a domestic airline ticket has dropped to $295 in August from $332 in July, according to travel site Hopper. That’s also back in-line with the average price for a domestic ticket in the same month in 2019.
Outside of fuel costs, this dip in ticket prices could be because consumer demand is fading, according to according to Kevin Gordon, a senior investment research manager at Schwab.
“That could be demand destruction,” he said, adding that the reopening from pandemic lockdowns inflated the price of things as consumers rushed to take vacations again. Now, as vacation season is winding down, that demand has fallen off.
One month doesn’t make a trend
Of course, one month of prices falling in some categories isn’t a trend.
The slowdown in price increases – and dips of costs of some items and services – may mark the beginning of declines, but more months of data would be needed to know for sure.
“I think it’s way too early to start taking a victory lap,” said Leer, adding that consumers should expect to be living in a world with elevated inflation for the next year and a half to two years.
In addition, it’s important to remember that falling prices, or inflation cooling off, may ultimately signal that the U.S. economy is slowing down.
“You want the price pressures relieved, but what the end goal with that is probably that we’re getting closer to a recession,” said Gordon. As the Federal Reserve continues to increase its benchmark interest rate, it wants the economy to slow down but will try not to tip the U.S. into a recession which would lead to job losses.
Further, prices of other common items have remained stubbornly high and are still climbing. The price of most fruit, for instance, continues to stay high and even increase week after week, according to USDA data. Swift changes are normal as well — even though dairy fell through Aug. 12, prices of milk and butter ticked back up through Aug. 19, USDA found.
Coffee prices were up 3.5% from June to July, according to the Bureau of Labor Statistics. Housing costs such as rent have also remained high and are some of the hardest to pull back down, Gordon noted.
Still, seeing the prices of common items trend back down is a good thing for consumers and sentiment.
“I think consumers increasingly believe that inflation is going to come down,” said Leer.