Can Prices Ever Go Back Down? Why Inflation's Aftermath Still Stings

The Federal Reserve slashed interest rates in late 2024, marking the first cut since the pandemic began. On the surface, inflation appears to be cooling, with price growth rates finally approaching the Fed’s 2% target. Yet millions of Americans aren’t celebrating. Consumer surveys show widespread economic pessimism despite wage gains. The disconnect is stark: prices have climbed dramatically over recent years, and even as inflation decelerates, shoppers continue to feel the squeeze. The fundamental question haunting household budgets is whether prices will ever stabilize at levels that feel manageable.

Inflation may be slowing, but the damage it inflicted remains painfully visible across every category of spending—from grocery stores to gas pumps to home purchases. “Eventually we will adapt,” says Matt Colyar, an economist at Moody’s Analytics. “But it’s going to take time.”

The Perception-Reality Gap: When Numbers Don’t Match Feelings

The Fed’s preferred inflation metric, the personal consumption expenditures (core PCE) index, showed a 2.7% annual increase in mid-2024 and has dropped substantially from 2022 peaks. Projections suggest the rate could reach 2.2% within the next year. By most economic measures, the price crisis is ending. So why do households remain deeply anxious?

The answer lies in cumulative price damage. The consumer price index reveals that prices surged roughly 22% between early 2020 and mid-2024. While wages climbed approximately 24% during the same stretch—suggesting Americans earned enough to keep pace—the reality proves more complex. Real earnings, after adjusting for inflation, actually declined in 2020, 2021, and 2022. A typical household earned about $81,210 in 2019 (in today’s dollars), roughly $600 more than in 2023.

The Gallup Economic Confidence Index has remained negative continuously since July 2021. The Conference Board’s consumer confidence survey dropped to a nearly two-year low in mid-2024, driven largely by labor market weakening. Jeffrey Roach, chief economist for LPL Financial, captures the sentiment succinctly: “People are getting paid more, and paying more.”

Energy and Food: The Daily Reminders of Higher Costs

Gasoline exemplifies the whiplash consumers have endured. A gallon cost $2.57 heading into 2020, plummeted to $1.77 during pandemic lockdowns in April 2020, spiked to $5.00 following geopolitical tensions in June 2022, and settled around $3.19 by late 2024. That represents a 24% increase from pre-pandemic levels—roughly tracking wage growth but hardly a smooth journey.

Groceries tell a similar story. Food prices rose just 2.1% in the year through mid-2024, suggesting normalization. But the four-year backdrop paints a grimmer picture. Nearly every major food category except tomatoes climbed faster between August 2020 and August 2024 than it did between August 2016 and August 2020. Eggs exemplify the shock: $1.46 per dozen in 2016, $1.33 in 2020, now $3.20. Consumers need sustained low inflation for months to come before grocery bills begin to feel reasonable again—and prices almost certainly won’t return to 2020 levels.

Housing: The Biggest Squeeze on Household Finances

While gas and food occupy mental real estate as constant price reminders, housing bears far greater weight on family finances. Nearly two-thirds of Americans own homes, making mortgage affordability a critical concern.

Between 2009 and 2020, home buying was relatively accessible thanks to rock-bottom rates following the Great Recession. The situation deteriorated sharply in 2022. As the Federal Reserve raised rates to combat inflation, mortgage rates climbed accordingly. By fall 2023, the average 30-year fixed rate exceeded 7.8%. Limited housing inventory—existing homeowners reluctant to abandon low mortgage rates and builders cautious about construction—pushed prices skyward faster than income could grow.

“We have had a lack of housing supply, which is why prices increase so much faster than income growth,” explains Lawrence Yun, chief economist for the National Association of Realtors.

Some relief has materialized. By mid-September 2024, the 30-year rate had fallen to 6.09%. Yun anticipates further decline: “Rates will probably be around 6% by the end of this year. Next year they might be slightly under 6%, maybe 5.50%.” However, prospective buyers shouldn’t expect the abnormally low rates that fueled pandemic-era demand to resurface anytime soon.

The Long Road to Normal

Inflation’s deceleration represents genuine economic progress. The Fed’s rate cut signals confidence that the worst has passed. Yet restoring consumer confidence requires more than rate cuts—it demands months or years of stable prices before households regain a sense of financial security. Even as wage growth nominally keeps pace with price increases, the psychological toll of rapid escalation lingers. Americans adapted to a new normal in 2020, and they’ll gradually adapt again. But the path to affordable prices remains long and uncertain.