Finance Expert Explains Why Prices Aren't Coming Down Even Though Inflation Is & Why That's Actually A Good Thing
We keep hearing good economic news, but few of us are feeling it. And it turns out the actual solution is to simply pay people better.
PERO studio / Shutterstock.comInflation has been essentially running most our lives for nearly three years now — and with prices still high, it doesn't feel like there's an end in sight, no matter what economists and other experts say.
It turns out there's a very simple reason for this disconnect. And as a financial expert on TikTok explained, we may actually be better off this way.
The finance expert explained why prices aren't coming down even though inflation is decreasing.
The good news is that inflation is heading in the right direction and has been for some months now. The latest data has the inflation rate down to 3.1%, a huge drop since its 9.1% peak in June of 2022 and just 1.1% higher than the Federal Reserve's goal of 2%. We're getting there.
But if you're like most Americans, you certainly aren't feeling it. Groceries are still absurdly expensive, as are most of the goods we all use daily. Car prices are also still exorbitant. And as for housing — well, that we don't even need to get into. So what gives?
It turns out that most of us are misunderstanding what decreasing inflation actually means and how it relates to the prices of things. And as finance expert and real estate investor Dean, one half of the popular TikTok duo @alexisanddean, explained in a recent video, we're actually far better off now than we would be if prices were falling.
The reason why prices aren't coming down is because we're experiencing disinflation, not deflation.
"Disinflation … is what we're technically going through right now," Dean explained. Certain big ticket items have indeed decreased in price — Dean cited airfares, appliances and TV as among the expensive items that have indeed inched down a bit, along with gasoline because oil prices are also down for the time being.
But everything else is barely moving. That's because what's actually happening now — disinflation — "means the rate of price increases are coming back down," not the prices themselves.
"Disinflation really means the reduction in the level of price increases from 9%, as it was [at its peak in June 2022]," Dean said. "So the [Federal Reserve] bank has a target of 2% inflation… that means prices are going to still go up every year by 2%."
To illustrate this, he used an Egg McMuffin as an example. "Things are still expensive. That freaking egg McMuffin is still $5. It's still going to be $5.25 in a year and it'll be $6 in a couple of years," he said. But, when inflation was skyrocketing, "it went from three bucks to $5 in a year. At least now it's not going to go up that fast anymore."
For prices to fall back to where they used to be would require inflation to come to a screeching halt entirely, or to go in reverse. And that pretty much only happens when we're in the darkest economic times possible.
Prices actually coming down would be deflation, which usually only happens in an economic catastrophe.
Dean went on to explain that "deflation is a reduction in prices," as opposed to a reduction in inflation rates, like we're seeing now — and it's a very, very bad sign.
"You don't get deflation in a healthy economy," Dean said. "If you go through deflation, that means you are in a terrible economy. You technically are in like a deep recession. That's when prices contract."
To put it bluntly: "People are thinking like, 'oh, you want prices to drop? I want deflation.' Yeah, you see deflation, more than likely, you [also] don't have a job anymore." And jobs, it turns out, are the actual answer to our economic problems right now — specifically, paying people more.
Dean says the actual solution to our problems is wage growth, not falling prices.
"The problem that we've had is [a lack of] wage growth," Dean said. "Wages, salaries are not growing as fast as inflation. That's why everything is out of whack."
Wage stagnation — pay not keeping pace with inflation — has been a problem in America for decades, starting in the early 1970s, and has been magnified by our post-pandemic economic challenges.
This too has improved — wage growth is now keeping pace with inflation, finally, after beginning to rise in 2019. But crucially, these wage gains have been seen mostly by the top 10% of earners — a tiny sliver of the populace that certainly does not include the people who need wage gains the most.
"Everything becomes way more unaffordable because you're not getting paid enough to keep up with the rising prices," Dean explained. The hope is that the relationship between pay, inflation and prices basically reverses itself as inflation comes back down to that 2% Federal Reserve goal.
"When it comes back down, ideally, wage growth is higher, so everything stabilizes," Dean explained. As it seems is so frequently the case nowadays, it turns out the real solution to our ongoing economic woes is to simply pay people fairly. Imagine that.
John Sundholm is a news and entertainment writer who covers pop culture, social justice and human interest topics.