Data from The Labor Department found that consumer prices rose 3.1 percent in January compared to last year, down from December’s 3.4 percent gain, reports The Wall Street Journal. This marks the lowest reading since June.
Although the rate of price increases has slowed, consumers still have a negative view of the economy, according to the report.
The persistent sting of previous price increases may be to blame: a Bank of America Institute analysis of customer data found that households tended to make far more transactions for food and drinks at restaurants and bars, grocery stores, and gas stations. These three channels showed higher prices relative to pre-pandemic levels.
“In terms of what gets ingrained in people’s brains, it’s stuff that they purchase frequently,” said University of California, Berkeley economist Ulrike Malmendier.
An analysis from Goldman Sachs confirms this hypothesis, suggesting that frustration with high price levels may have contributed to low confidence readings in the 1980s even after inflation dropped.
“It does seem like it takes a while for confidence to recover, in part because people are focused on levels rather than changes,” said Goldman Sachs chief economist Jan Hatzius.
Economists expect inflation to continue to cool this year; however, they warn that the process could be nuanced.
“We think that especially in the first quarter of the year, inflation is going to be slightly higher than what we’ve seen in the past six months,” said Morgan Stanley economist Diego Anzoategui. “In the second half of the year, we are expecting more disinflation on the services front.” Full Story (Subscription Required)
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