Hey, there’s some good news for your wallet! Inflation in the US declined in January, which means consumers’ buying power is on the rise. The consumer price index, which measures the change in prices across all sectors of the economy, rose 3.1% in January compared to a year earlier. While this is still high, it’s an improvement from the 3.4% rise in December.
And even though some prices, like shelter, food, electricity, and airline fares, increased from December to January, it’s not cause for alarm. According to Mark Zandi, chief economist at Moody’s Analytics, it’s just a “brief detour” from the downward trend. He emphasizes that inflation continues to moderate, and despite this little uptick, all the trend lines are looking good.
The best news of all? Workers’ paychecks can now buy more. Since May, hourly pay has exceeded the rate of inflation, and real average hourly earnings rose by 1.4% between January 2023 and January 2024.
Consumer sentiment is also on the upswing, with a 13% jump in January and the highest level since July 2021, thanks to improvements in the outlook for both inflation and personal incomes, according to the University of Michigan.
While the overall outlook is positive, there are still specific categories where inflation remains relatively high. For example, motor vehicle insurance costs are up by 20.6% in the past year, recreational expenses are up by 2.8%, and personal care costs are up by 5.3%.
But don’t worry, it’s not all bad news! Some categories have retreated significantly, like groceries, which have declined to 1.2% over the last 12 months from a peak of around 13.5% in August 2022. Plus, overall energy costs have decreased by 4.6% in the past year.
The pandemic played a big role in inflation, too. In early 2021, consumer demand for household goods skyrocketed as people spent more time at home and couldn’t travel. Supply chains couldn’t keep up with the demand, causing prices to soar.
Now, the good news is that supply chains and consumer demand for goods have largely normalized. Additionally, wage growth remains a major factor in managing inflation. It’s at its highest level in decades, and as the labor market has cooled off from red-hot levels, the inflationary pressure for services has also eased.
Overall, while there have been minor hiccups, there’s a lot to be excited about. Inflation is on a downtrend, and people’s paychecks are stretching further, which can only mean good things for the economy. So go ahead, breathe a sigh of relief!
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