Inflation Slows but Food Still Eats Up Purchasing Power

The grocery bill may increasingly be hard to swallow. The restaurant tab may make diners hesitant to reach for the check, and perhaps seek to split the bill with the rest of the table.

In terms of headline numbers, the Consumer Price Index (CPI) increased 0.1% in November, and was up 3.1% from the same month last year.

A 2.3% decrease in energy prices helped muted inflation’s overall impact.

But food prices increased 0.2%, and were up more 2.9% overall. Food consumed at home was 1.7% more expensive than last year, but dining out at restaurants at other establishments was up 5.3% vs. a year ago.

The cost of shelter was 6.5% higher than a year ago. These bare necessities, then, are among the categories of spending that are most significantly outpacing and offsetting some of the declines in, say, fuel (gas prices are down about 10% from last November’s levels).

Last week, the Labor Department reported that wages were up 0.4% in the past month, but up 4% from last November. That number is above the headline inflation rate but trails the key areas just noted above.

Wage Growth Feels Like It Comes Up Short

PYMNTS Intelligence data shows that wage growth is not in line with inflation, which means that savings have been pinched, and credit’s been a lifeline, though the lifeline has grown taut.

Coming into the second half of 2023, one-third of cardholders have increased the share of their expenses paid by credit cards while only 15% have reduced their credit card spending.

Incomes have increased in the past year to match inflation for only 15% of consumers, and the remaining 85% tend to be more pessimistic about the U.S. economy. Ninety-one percent of those whose wages have not kept up noted high prices as a source of concern.

Fifty-four percent of consumers are more likely to believe it will take two or more years for inflation to die down to pre-2021 levels. But the data shows that on average, consumers do not expect inflation to return to pre-2021 levels until spring 2025.

As we noted yesterday, short-term inflation sentiment may be somewhat positive looking out at the short term, namely, one year from now. The Federal Bank of New York said Monday, “Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — fell at the one-year ahead horizon, increased slightly at the three-year ahead horizon, and remained unchanged at the five-year ahead horizon.”

Looking out over the one-year horizon, the median expectation among consumers is that inflation will run at 3.4%. That’s a few tenths of a percentage point above the just reported rate tied to the CPI.

And yet, looking out over the three- and five-year time frames, consumers see inflation entrenched at a respective 3% and 2.7%.