Lower inflation does not necessarily mean lower prices
Explainer · Markets & Economy
Inflation can slow while a household’s bills remain higher than before. The distinction is between the rate of change and the price level.
A simple example
Imagine a basket costing $100. A 5% increase takes it to $105. A further 2% increase takes it to $107.10. The inflation rate has slowed from 5% to 2%, but the basket has not returned to $100. These are hypothetical numbers, not current inflation data.
Slower inflation is often called disinflation. A decline in the overall price level is deflation. A fall in the price of one item does not establish that the overall level is falling.
What the index tells us
The Bureau of Labor Statistics’ Consumer Price Index tracks average changes in prices for a representative basket of consumer goods and services. Its weights describe the relevant average household, not any one family’s exact budget.
A household spending an unusually large share on a fast-rising category can experience more pressure than the headline suggests. BLS publishes both all-items measures and measures excluding food and energy. Excluding those categories for analysis does not mean households stop paying for them.
Also check the comparison: a one-month change and a twelve-month change describe different periods. Seasonal adjustment matters when comparing short-term movements.
Source: BLS Consumer Price Index questions and answers.
How we assess claims about affordability
We ask whether a statement promises a slower increase, a lower price level, or greater purchasing power. Those are different outcomes. An affordability claim should identify the relevant expenses and incomes, the starting date, and the comparison period.
Our reporting should show the calculation rather than relying on a slogan. If a speaker says prices are down, which prices, measured from when? If the claim is that families are better off, what evidence describes their resources as well as their costs?
AI-assisted explainer. Approved for publication by Reginald Kendall Sr. Primary sources are linked above.