Why more Americans are struggling even as inflation cools

Inflation is slowing down, but prices are still high — and likely to stay that way.

That’s generally considered good news. The economy is expanding amid a lower rate of price growth and a strong job market.

However, even a broad pullback in price increases underscores another bitter reality: We’re still paying more for many goods and services with little relief in sight.

“Cooling inflation is not the same as a substantial reduction in prices,” said Mark Hamrick, senior economic analyst at Bankrate. “Elevated prices have largely persisted, which means that Americans continue to face affordability challenges on a range of things both necessary and discretionary, including homes, vehicles, car insurance, food, electricity and travel.”

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Indeed, the rate of price increases for food has subsided.

Monthly “food at home” inflation has been near 0% for the past four months, according to the latest government inflation data. U.S. gasoline prices fell 3.6% in the month from April to May and even housing inflation is down from its peak over one year ago.

And yet, because in most cases price increases are only slowing — not falling outright — consumers are still seeing their monthly costs rise, especially when it comes to essentials like food, utilities and rent.

On average, 61% of Americans report spending more on groceries and dining out compared to a year ago, according to a recent Wealth Watch survey by New York Life. Of that group, costs rose $209.45 a month, on average. Further, 56% of adults said they now spend $161.45 more a month on utilities and 48% said rent costs an additional $302.94 a month, New York Life found.

The insurance company polled 2,002 adults in late May.

“We can see the toll inflation is taking on Americans’ finances, as they report higher costs of living on everyday expenses and report lower levels of financial confidence,” said Donn Froshiesar, New York Life’s head of consumer insights.

As more households stretch to cover these higher prices and higher interest rates, there are new indications of financial strain.

“From filling up a tank of gas to making a rental payment to buying groceries, most consumers are paying more today for everyday expenses than they ever have,” Charlie Wise, senior vice president and head of global research and consulting at TransUnion, recently told CNBC.

“And if they’re using a credit card to make these purchases, their interest rates are at much higher levels, so costs also are rising for those consumers carrying a balance.”

As a result, more consumers are falling behind on their payments. Over the last year, roughly 8.9% of credit card balances transitioned into delinquency, the New York Fed reported in May. And more middle-income households anticipate struggling with debt payments in the coming months.  

“We’ve gone from an environment where inflation was the focus, and the impact of rising prices has resulted in an affordability crisis, which is now front and center,” Bankrate’s Hamrick said.

However, “if prices continue to normalize and the job market remains stable, further progress can be clawed back on the affordability front,” he added.

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