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T he annual inflation rate has cooled, new data from the U.S. Bureau of Labor Statistics revealed on Wednesday.
The July consumer-price index shows an annual inflation rate of 2.9%, slightly below expectations and the smallest increase since March 2021. The slowing inflation rate may be a welcome change for American consumers feeling the pinch from fast-rising prices over the last few years— but experts say it’s unlikely to cause a drop in grocery store prices.
“If inflation goes down, it means that the rate at which prices increase is slowing down, but it generally is not going to mean that prices are going down,” says William Hauk, associate professor in the Department of Economics at the University of South Carolina.
High inflation has led the U.S. to face a surge in consumer prices in recent years—in 2022, the U.S. saw one of the highest rates of inflation in 40 years . Grocery stores prices are now almost 25% more expensive than pre-pandemic levels, according to CPI data . The COVID-19 pandemic, coupled with global conflicts like the war in Ukraine , caused major supply chain disruptions and higher prices.
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But in recent months, inflation has shown signs of cooling. In June, the rate of inflation fell 0.1%, marking the lowest monthly growth rate since May 2020 and a two-thirds decrease from June 2022.
Though that might not translate to lower prices, it does mean shoppers are less likely to experience sticker shock each time they visit the store. And although most consumers might be eager to see cheaper prices, economists say that lowered prices, also known as deflation, would be a bad sign for the economy—and could lead to a recession, since it typically occurs when people are spending less. “Of course, we'd like prices to be lower, but the problem is that one person's spending is another person's income,” says Hauk. “So if prices are generally decreasing throughout the entire economy, on average, it also probably means that people are making less money throughout the economy, on average.”
If people expect prices to go down in the future, they might hold off on purchasing big items, resulting in less money flowing through the economy. Deflation would also cause problems in the lending market, if borrowers are not making enough to pay off loans.
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That doesn’t mean that consumers have nothing to gain from disinflation. Mortgage rates tend to go down during periods of disinflation—making it easier for potential homebuyers or car owners.
And above all, consumers can expect a lot more stability. “It's difficult to do financial planning when you're not sure about the rate at which prices are going to be increasing in the future,” says Robert Triest, Professor of Economics at Northeastern University. Whether you’re buying a home or a carton of eggs, that’s good news.
Write to Simmone Shah at simmone.shah@time.com .
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