Editor’s note: This story is part of our Mixed Signals: 2024 Economic Outlook for Texas. The series will feature stories about labor, inflation, housing, migration, rising utility costs and other factors driving the North Texas economy.
The rate of inflation has been falling sharply and is expected to slow further in 2024 after reaching a 40-year high in 2022.
But even this rosy macro picture will continue to be felt unevenly across the economy in 2024.
About 52 percent of Texans said they were very stressed about inflation, compared with 47 percent of U.S. residents overall, according to U.S. Census data released in November. The higher stress is due to Texas having a greater share of the population living below the poverty level than the national rate.
The Federal Reserve lowered its inflation expectations, meaning that at least the cost of borrowing money will remain flat. Morningstar economists are optimistic that inflation will average 1.8% from 2024 to 2027, below the Fed’s 2% inflation target.
Inflation is most often blamed by consumers who say the economy is not on track, even though wages are up and the unemployment rate is low.
“Consumer and business surveys show that people care more about the price level – very high! — than the rate of CPI growth,” Bill Adams, Comerica Bank’s chief economist, said in an email.
The 3.1 percent increase in the U.S. consumer price index in November was only about a percentage point above November before the pandemic, Adams said. “The share of small businesses that say inflation is still their biggest problem is down from its peak in 2022, but still above any time between 1982 and 2020.”
Inflation in Dallas-Fort Worth is expected to remain above that of the U.S. largely due to the cost of renting and owning a home. D-FW’s inflation rate of 5.2 percent in November would have been about 3.1 percent, or the same as the U.S. rate, if housing costs had been lower, said Julie Percival, the bureau’s Southwest regional economist.
Adjustments in the supply chain helped lower prices for consumer goods such as furniture, toys, electronics and clothing. Prices for dairy products, eggs, chicken and seafood have fallen. Still, too many groceries are well above pre-pandemic prices.
For individual households, the reality of higher prices comes in waves—apartment lease renewals, a plane ticket, an annual homeowner’s insurance bill and the less frequent need to replace the car.
More of this will be felt in 2024.
Have you bought a car recently?
With the average age of a car on the road today at 12.5 years, more people are about to experience sticker shock, a term that first hit the scene when Americans went car shopping in the early 1980s.
The inflation rate was 14.5% in 1980, and new safety and energy-saving features pushed car prices up.
Sticker shock is back for anyone who hasn’t bought a car in at least a decade. Ten years ago, the average vehicle cost $31,356, according to Kelley Blue Book. The average price of a new car was $48,247 in November, down 1.5% from a year ago but still up 23% from three years ago.
Car dealers are offering low promotional financing rates to ease the pain on select models. Inventory levels have moved in favor of consumers. New vehicles on dealer lots and in transit topped 2.5 million units in early December for the first time in two years, according to Cox Automotive. That’s up 57%, or 925,000 units, from a year ago and represents a 71-day supply.
Still, car shoppers may need to remain flexible to find a car at a low price, according to Cox Automotive. For Toyota, Honda and Kia, buyers should look harder and pay more for hard-to-find models, which the research firm says include the new Toyota Grand Highlander, the Honda CR-V and its hybrid version, the Toyota Camry, Corolla and RAV4, and the Honda Civic.
Food prices are calming down
Although car purchases are infrequent, trips to the grocery store are a constant reminder that prices are high. But at least food prices are coming down.
Egg inflation should remain a headline in early 2023.
Prices for the staple eased in 2023 with a dozen Grade A eggs priced just under $2 in the Dallas area at Walmart, HEB and Kroger.
The largest grocery store in the US is talking about deflation next year.
“We may be dealing with a period of deflation in the coming months,” Walmart CEO Doug McMillan said last month on an earnings review conference call. “And while it would put more pressure on units, we welcome it because it’s better for our customers.”
Some of the recent grocery price drops are in the middle of the store, dry groceries like breakfast cereals.
Will these categories be dropped? “We hope they will,” McMillan said.
On a two-year stack, Walmart’s dry grocery prices are still up in the “mid-double digit” percentage increase range, or within 14% to 16%.
It may take some arm wringing from Walmart to lower cereal prices.
“We have seen the inflation environment stabilize at current levels,” said Dave McKinstray, chief financial officer of WK Kellogg Co. during a call with investors last month.
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