Inflation rates in the United States are declining at a faster pace than anticipated, but Treasury Secretary Janet Yellen has warned that Americans should not expect a widespread drop in prices. Speaking before the Senate Banking Committee, Yellen stated that prices for most goods are unlikely to return to pre-inflation crisis levels. While wages have increased considerably and the pace of price increases has slowed over the past six months, Yellen acknowledged that some prices will remain higher than before the pandemic.
The surge in prices for groceries, new cars, and health insurance in 2021 and 2022 was a result of rampant inflation caused by disruptions in the global supply chain, a tight labor market, and increased consumer demand fueled by stimulus cash. Although the pace of inflation has cooled in recent months, prices for most goods have not yet receded and are not expected to do so, according to Yellen. She argued that the focus should be on rising wages rather than lowering prices.
Federal Reserve Chair Jerome Powell expressed a similar sentiment, stating in an interview with "60 Minutes" that while the prices of some things may decline, an overall decline in the price level is not expected. Inflation, though considerably lower than its peak in June 2022, remains above the Federal Reserve's 2% goal. When compared to January 2021, prices have increased by a significant 17.6%.
The high inflation rates have placed significant financial pressures on U.S. households, particularly impacting low-income Americans who are more vulnerable to price fluctuations. Food prices have increased by 33.7% since the start of 2021, shelter costs are up by 18.7%, and energy prices have risen by 32.8%. Moody's Analytics calculations indicate that the typical U.S. household needed to pay $211 more per month in December to purchase the same goods and services as a year ago. Compared to two years ago, Americans are paying an average of $1,020 more each month.
Yellen's testimony comes as many Americans express growing pessimism about their financial situation under President Biden. A recent Bankrate survey shows that 50% of Americans believe their financial situation has worsened since the 2020 presidential election, while only 21% think it has improved. The impact of the economy in the coming months may determine the perception of "Bidenomics," according to Mark Hamrick, senior economic analyst at Bankrate.