Slowing US Inflation Rate Masks Underlying Consumer Stress

U.S. inflation ticked down 0.1% in November, but consumers are not seeing improvement at the checkout.

The Bureau of Economic Analysis (BEA) reported Tuesday (Dec. 13) that the Consumer Price Index (CPI) for November stood at 7.1% compared to this time last year, noting: “The index for shelter was by far the largest contributor to the monthly all items increase, more than offsetting decreases in energy indexes. The food index increased 0.5% over the month with the food at home index also rising 0.5%.”

Better than October’s 0.3% increase, the slight month-over-month improvement in BEA’s all-items index for November is unlikely to comfort consumers whose incomes are not keeping pace with overall price increases.

Core categories remain stubbornly high, keeping pressure on the preponderance of U.S. households that report living paycheck to paycheck, now hovering around 61%.

BEA said indexes for shelter, communication, recreation, vehicle insurance, education and apparel all increased in the month, meaning “nice to have” categories like vacations, dining and clothing all took a hit. Indexes for used cars and trucks, medical care and airfares fell.

Government data is leaning into a narrative that the four-decade inflationary highs of 2022 are ebbing, but PYMNTS analysis shows an arguably more accurate picture of inflation’s impact.

A Clearer Look

PYMNTS’ Karen Webster presented new research Monday (Dec. 12) of 20 months of PYMNTS data on how consumers experience inflation, finding that the front-line experience of paying consumers has been a more accurate portrayal of real economic conditions for Americans than government reports.

“Consumers consistently say that the prices they pay for food, gas, clothing and household essentials are more than twice as high as what government data reports,” Webster wrote, pointing to consumers’ reports that grocery prices are up nearly twice as much as what official CPI data reports, and often even more.

“They report the prices of fresh meat and vegetables — the reason most consumers go to the physical grocery store — have risen at a rate five times higher than CPI reporting,” she added.

Citing PYMNTS’ December report “Consumer Inflation Sentiment: In It for the Long Haul,” Webster looked at key patterns revealing the perception gap between government data and what consumers encounter at the checkout.

Taking food as an example, Webster said given CPI data that restaurant prices in October were up 8% versus a 12% increase reported for groceries, “one might assume that eating out is more financially compelling than buying groceries and cooking food at home when compared to 2021.”

“However, according to PYMNTS data, three-quarters of consumers say they are eating at home more often than they once did,” she added. “More than a third are switching to cheaper restaurants when they do dine away from home.”

Variations in retail pricing can be partly blamed for the data disconnect.

According to Matt Pavich, senior director of retail innovation at Revionics, an artificial intelligence (AI)-driven price optimization provider, consumers’ experience with retail prices can vary widely depending on where they shop. Roughly half of retailers were offering deep holiday discounts this year, but half were not.

“It’s the Wild West of retail pricing this holiday season with inventory mismatch fueling a wide range of price-tag decisions,” Pavich said in an email to PYMNTS after the CPI data release, pointing to a range of variables that are driving pricing decisions.

“It is affecting retailers so differently depending on whom you talk to — with factors from vertical to retail size to how they navigated supply chain constraints,” he added.