December 13, 2022 - NPR
Scott Horsley
Americans are saving money at the gas pump, only to spend it in the produce aisle.
Gasoline and grocery prices moved in opposite directions last month, as the overall inflation rate declined slightly. Consumer prices in November were up 7.1% from a year ago, compared to an annual increase of 7.7% the month before.
It was the smallest 12-month increase since December of last year.
The inflation figures were released Tuesday by the Labor Department, just as the Federal Reserve prepares to raise interest rates for the seventh time in nine months on Wednesday.
For a year, Americans have seen racing inflation eat away at their savings and add to their credit card debt. A key source of pain was costly gasoline.
But gasoline prices dropped 2% between October and November and gas is now selling for less than it was a year ago, before Russia's invasion of Ukraine.
As fuel prices fall, however, food prices have been climbing. Grocery prices rose 0.5% in November, led by a whopping 8.9% jump in the price of lettuce.
"I've never seen it like this," said Brian Guarino, a produce distributor outside Philadelphia.
A wholesale box of romaine lettuce that typically sells for $25 to $30 on the east coast is costing up to $100, as a result of growing problems in California and high transportation costs.
"You can't put lettuce on a hoagie and expect not to put an upcharge on it, when you're paying $100 for 24 heads of lettuce," Guarino said.
An insect-borne virus curbed lettuce production in the Salinas Valley this fall. And while gasoline prices have tumbled, the diesel fuel used to truck vegetables still costs nearly $5 a gallon.
While food and energy prices are notoriously volatile, the prices of many other goods appear to be stabilizing. Used car prices fell 2.9% between October and November, while new car prices were flat.
"It is far too early to declare goods inflation vanquished," Fed chairman Jerome Powell said two weeks ago, about the stabilization. "But if current trends continue, goods prices should begin to exert downward pressure on overall inflation in coming months."
Likewise, there are signs that housing inflation has begun to ease. Rents are still rising much faster than they were before the pandemic, but not at the breakneck pace they were in the spring.
Shelter costs rose 0.6% in November, down from 0.8% the month before.
The average cost of renting a single-family home in April was nearly 14% higher than a year earlier, according to CoreLogic, a housing data company. By September, the annual increase had dropped to around 10%, partly because of softening demand.
"People are now, as a result of high rent, doubling up again, so we're seeing an increase in the number of people moving in with roommates," said CoreLogic economist Selma Hepp.
"There's still some ways to go," Hepp said, adding that she expects "very fast deceleration over the next year."
Rents are reflected only gradually in the official inflation data, so the slowdown in housing costs is not yet fully evident in the consumer price index.
Still, Powell described the real-time reports from the rental industry as encouraging, with inflation in new leases falling.
"We would expect housing services inflation to begin falling sometime next year," Powell said.
The Fed chairman is less confident about the price of services, which includes everything from restaurant meals to haircuts and which is largely driven by the cost of labor.
Wages have been rising at a rapid rate, and Powell worries that could keep inflation stubbornly high.
"Despite some promising developments, we have a long way to go in restoring price stability," he said.
Fed policymakers are meeting this week, and they're widely expected to raise interest rates by another half percentage point, in an effort to tamp down demand and bring prices under control.
Interest rates have already risen from near zero in March to nearly 4%. Powell warned rates are likely to climb higher and stay up longer, adding that history cautions against easing up on the fight against inflation too soon.
"We will stay the course until the job is done," he said.