Silver lining for consumers: Food price growth has gone flat and other prices are falling

Price growth in many key consumer categories has slowed considerably or ceased altogether — but that has done little to dent consumer worries as the costs of housing and other services have continued to climb.

Among the broadest categories tracked by the consumer price index, or CPI, two of the ones most acutely felt by consumers — food and energy prices — hit 2.2% and 2.1% on a 12-month basis in March, respectively.

That's essentially in line with the Federal Reserve's 2% goal.

Within those categories, food at home — essentially, groceries — climbed just 1.2%, while gasoline prices climbed 1.3%.

"Food is a notable bright spot," said Neil Dutta, head of economic research at Renaissance Macro Research.

In spite of the positive trends, progress in reducing overall CPI has stalled. Economists generally agree it’s mostly because the cost of rent has remained elevated, but there remains disagreement about how soon slowing rent growth will start to appear in the CPI.

Even as the Fed and other economists have preached patience, the upshot has been a CPI that has remained stuck between 3% and 4%, above the Fed’s 2% target, for more than a year.

On Wednesday, the Bureau of Labor Statistics will release CPI data for April, with 12-month expectations for a reading virtually unchanged from March’s 3.5%. Once again, rent growth is expected to keep the CPI elevated.

Still, price trends in a host of categories within the CPI index are providing relief to pocketbooks.

For instance, gas price growth is being held at bay in part thanks to booming U.S. production, Dutta said.

"Do consumers think gas prices are good? No," he said. "But they're also not getting any worse."

Meanwhile, car prices have begun to decline year on year, with new cars averaging about $47,000, down 1% from last year and down 5.4% from the post-pandemic peak of December 2022. Used cars now average about $26,000, according to Kelley Blue Book, down 4% from a year ago and off 7% from the 2022 peak.

Alongside those declines, overall auto affordability has significantly improved. The number of weeks of income needed to afford a new light vehicle hit an all-time high in the winter of 2022, as measured by Cox Automotive/Moody's Analytics.

The declines in car prices are emblematic of the broader drop in what are known as durable goods, said Eric Wallerstein, chief markets strategist at Yardeni Research.

"Everyone bought durables during the pandemic, but there only so many household appliances you can buy," Wallerstein said.

Prices have been flat or falling in other significant categories and items over the past year:

• Apparel: 0.4%

• Cheese: -3%

• Milk: -1.6%

• Fish and seafood: -2.6%

• Household furnishings and supplies: -2.7%

• Smartphones: -9%

Despite those improvements, costs in the so-called services category — everything from haircuts to auto repair to doctor’s visits, as well as products like insurance — have continued to grow alongside rents.

Those other trends have put a damper on the overall consumer mood. The University of Michigan's most recent survey of consumer sentiment fell to its lowest reading in about six months, with concerns that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.

Another measure of consumer confidence, released by the Conference Board business group, also recently fell to its lowest level since July 2022.

In fact, inflation-adjusted incomes have, in the aggregate, continued to grow, though the growth has slowed this year.

"It really is an income-driven cycle, and income-driven cycles can last a long time," Wallerstein said.

But many economists agree consumers are still adjusting to the post-pandemic price environment. Tracy Bell, chief investment officer at First Horizon Advisors, said prices in most cases won’t be returning to pre-pandemic levels as a result of the lingering effects of supply-chain disruptions and other more structural changes in recent years.

“If you look at food, prices for things like fertilizer, equipment, transportation, labor — all of that has gone up,” she said. “If you think about the chain of events that it takes to get food from the fields to the grocery shelves, all those costs along the way have increased, and all that goes into price.”