Inflation is finally slowing down. Will things get cheaper?

Inflation is falling. According to new data released Wednesday, prices rose 8.5 percent from a year ago, an improvement from June, when they rose 9.1 percent.

Monthly price growth was also positive, meaning that overall prices have not risen since June.

Last month’s economic downturn, caused in large part by falling fuel prices, is an important step in the right direction. However, the United States is still a long way from the Federal Reserve’s 2% annual inflation target, and the bad news is that high prices for many goods and services are likely to continue for some time.

The Fed is taking aggressive steps to control inflation, but that does not mean that overall prices will fall sharply or return to pre-epidemic levels. It only means that prices will generally stabilize and rise more slowly than they have continued to rise.

This is how Fed policy works. The central bank is not trying to lower prices, but rather to suppress rates that are rising at a slower, more stable rate.

The Fed and Fed officials are targeting low inflation, in part because the central bank fears deflation (falling inflation), which could hurt economic growth. If prices generally fall, consumers may cut back on consumption because they expect future spending to be much lower. Reduced spending could lead to slower hiring and corporate investment, which means more workers could be laid off and wage growth could slow. If Americans can instead expect prices to rise at a steady 2% rate, they can plan ahead and make more informed decisions about their finances.

However, just because prices will continue to rise across the board doesn’t mean things will be this expensive forever. As demand for commodities has spiked, many commodity prices have risen sharply during the pandemic, and economists say some categories may eventually face some price declines.

“In terms of prior fashion, will the price return to the original price? Probably not. “Bank of America U.S. economics director Michael Gapen said. “But is there an opportunity for some prices to fall quite sharply in the direction they were in the pre-epidemic era? The answer was in the affirmative.

Americans have already seen such a drop in prices happen. According to the Consumer Price Index report released Wednesday, gasoline prices were down 7.7 percent from the previous month. Gasoline prices peaked at more than $5 a gallon last June and are still up nearly $1 from last year, but have been falling steadily for weeks.

The retail price of gasoline could fall below $3 a gallon in the future as fuel prices tend to fluctuate more. Used car and furniture prices, which rose sharply during the pandemic, may also fall in price as the supply chain breaks down and demand declines.

Services, on the other hand, tend to get more expensive over time, and prices change more slowly. That means things like rent, restaurant meals and health care, though at more moderate rates, will still cost more, economists say.

That may seem dim. But in the end, it won’t be so bad. If average wages rise and outpace inflation, that means many Americans can afford to buy more, even as prices rise. Right now, that’s not happening. Average hourly wages have risen 5.2 percent over the past year because workers are still in high demand and companies are struggling to fill vacancies during a pandemic. It’s a quick step, but wage growth still hasn’t kept up with inflation, and it’s eroding many workers’ incomes.

Jason Furman, a Harvard economics professor and economic adviser to the Obama administration, said what ultimately matters is how much wages rise relative to inflation.

“If wages continue to rise rapidly and inflation slows, people will be able to afford more than all of this,” Furman said. “So if we end this episode and everyone earns 15 percent more than before and the price goes up 12 percent, that’s not so bad.”

Products that jumped in price could see a rebound.

Demand for goods has surged as consumers have used their deferred savings to buy new couches and appliances. Economists say that as inflation declines and consumers spend more on services and less on goods, some goods may get cheaper. But economists warn that many goods prices are months or years away from falling significantly, meaning that the U.S. will be experiencing an uncomfortable period of inflation for some time.

Wendy Edelberg, director of the Hamilton Project at the Brookings Institution, said she expects prices of many goods, such as exercise bikes and small appliances, to fall as demand declines and supply constraints ease. Major retailers such as Wal-Mart and Target have already said they will sell their products at reduced prices to reduce excess inventory.

“We expect commodity prices to fall completely as both factors disappear,” Edelberg said. “How much they fall, and whether they go back to trend, or whether they do go down trend for a while or not, depends on several other factors.”

Edelberg said there are “huge unknowns,” such as how the war in Ukraine will affect energy costs and whether it will affect the cost of shipping goods to stores. Consumer and corporate expectations for inflation are also important. “If companies expect inflation to remain high, they may be reluctant to cut prices even if demand starts to calm down,” Edelberg said.

Laura Rosner Warburton, chief economist at Macropolis Perspectives LLC, said used-car prices may fall as supply chain disruptions have eased (used-car prices fell slightly last July, but were still 6.6 percent higher than a year ago). Car manufacturers have struggled to procure critical components, such as semiconductor chips, during the pandemic, shutting down production and raising prices. As people trade in fewer cars, the shortage of new cars has led to a ramification of the used car market.

“We have seen unprecedented increases in vehicle prices,” she said. “Even if supply improves, prices will still be at higher levels than before, but we may see a significant change in the rate of increase, especially for used cars,” he said.

Still, Rosner Warburton said supply is still tight, and car prices will fall further in the next two to three years, not in the next six months.

Volatile food and gas prices are also likely to fall relative to other commodities. Retail gasoline prices have fallen in recent weeks due to falling oil prices as investors become increasingly concerned about the possibility of a recession. However, food prices rose 1.1 percent in July compared to June.

“Food and fuel are the two most volatile factors in the inflation basket. “Fuel can go up or down,” said Joe Brusuelas, chief economist at RSMUS.

But economists warn that the war in Ukraine still leaves the outlook for gasoline prices uncertain, and that relief will be temporary if fuel prices fall below $3 a gallon.

As for services, Rosner-Worberton said, airfare prices will continue to fall after a huge boom earlier this year. Already in July, airfare prices have fallen significantly, down 7.8 percent from the previous month. “Prices are falling even more because of lower summer demand and fewer people traveling, but labor and fuel costs are still higher than they were before the epidemic,” Rosner Warburton said.

Service is likely to continue to grow.

James Knightley, senior international economist at ING Economics, said: “Prices for many services are unlikely to fall much because companies are now paying more for labor, and workers don’t usually face wage cuts. As labor costs rise, it becomes more expensive to operate businesses, and companies are shifting some of that cost increase to consumers.

“Employers don’t like to do that,” Knightley said. “Your relationship with your company’s employees is very seriously damaged. That’s why real pay cuts tend to happen only in extreme situations.”

“Even if the United States goes into recession in the next few months, we expect a relatively shallow recession because many aspects of the labor market are still strong,” Knightley said.

“Food in grocery stores may be cheaper, but prices will probably rise at a slower pace than they are now,” said Robert Dent, chief U.S. economist for Nomura Securities.

Dent said: “The current wage inflation in food service is very, very high.” “So it could mean that consumers could see a difference in how quickly grocery store prices normalize versus restaurant menu prices.”

Rent is unlikely to get cheaper. “In the coming months and years, rents will rise at a lower rate than they are now,” said Omer Sharif, founder of research firm Inflation Insight. Rents continued to rise in July, up 0.7% from June.

“Wage and labor income growth tends to be the biggest driver of that income,” Sharif said. “Then the lack of affordable rents is probably one of the reasons it tends to rise steadily over time.”

Sharif said hospital and physician prices will continue to rise, as health care prices in general have declined modestly. And goods that didn’t experience significant price spikes during the pandemic, such as clothing and alcohol, don’t have much room to fall. Sharif said that as retailers get rid of excess inventory, clothing prices may fall as much as 4 percent above pre-pandemic levels, but it won’t take long for those prices to fall back to normal levels.

Wage increases may help people cope. However, it is unclear when they will lead to higher inflation again.

To curb inflation, the Fed has been raising interest rates since March to curb consumer demand. The idea is that as it becomes more expensive to borrow money, consumers will start buying fewer goods and services, which will eventually lead to lower prices. But if consumers cut back on spending, companies could cut back on employment, which could lead to less demand for workers and slower wage growth, said Sarah House, chief economist at Wells Fargo.

“I think it will still take a year for wage growth to exceed inflation,” he said.

Adam Shapiro, an economist at the Federal Reserve Bank of San Francisco, estimated that nominal wage growth has historically outpaced price growth by about a percentage point. Shapiro said nominal wage growth could grow slightly faster than inflation in the medium term or about the next two to five years, but the timing is highly uncertain because it depends on the easing of the pandemic and geopolitical turmoil.

That may not be much comfort to Americans, who now realize that they cannot afford basic necessities such as gasoline, rent and groceries.

Amanda Krause, 36, editor-in-chief of a Tucson, Arizona, publication, said she has been relieved to see gasoline prices fall in recent weeks. The cost to fill up a 2006 Ford focus is about $30, down slightly from about $40 a month ago.

But Krause said other parts of her budget, including day care for her 3-year-old daughter and groceries for her family, have become more expensive. Krause said he recently noticed that the price of a loaf of bread, which he buys each week, went up $1, and ground beef, which cost $10, went up nearly $14.

Despite a 3.5 percent wage increase last month, Krause said he’s still struggling to keep up with rising prices and isn’t sure if grocery or child-care costs will drop significantly.

“I hope I can be optimistic,” Krause said. “Gasoline prices have been dropping steadily for the last three or four weeks, but today I found that the cost of food has gone up a little bit since last week, and I bought the same amount or less of groceries. So it doesn’t give me much hope.”