Many people think inflation causes prices to increase. In fact, it is just the opposite. Inflation is a measure of how fast prices are rising. The faster prices increase, the higher the inflation rate. More importantly, prices remain at their elevated levels and continue to increase even as inflation decreases.
Prices dramatically increased in 2021 and 2022, causing inflation to soar to 9%. Covid contributed to increasing prices by making things scarce, thus reducing supply. However, the major cause of price increases was government spending due to things like the Inflation Reduction Act, the Build Back Better Plan, checks sent to people during covid, supplemental Affordable Care Act funding, etc.
The only way prices will decrease is if there is a change in the economic drivers, e.g., supply increases, demand decreases, technical innovation occurs and government and/or consumer spending decreases. Some of these things are occurring. Oil and gas production has increased. Technical advances in chips and AI are occurring. Government is attempting to decrease spending by cutting waste and some programs.
The impact of these actions will take time to impact prices. Some price reductions on selected items may occur quickly. Most will take time to go down. However, broad across-the-board price reductions to pre-covid levels are never going to happen.
It should be noted that some amount of price increases is desirable. This may seem counterintuitive, but flat or decreasing prices are bad for the economy. Decreasing prices and resulting negative inflation would result in a recession.
Tom Cerra
Latrobe