Inflation is slowing. Here's why prices still aren’t going down

Jenn Lueke, 27, is a recipe developer based in Boston who creates content online showing people how to eat well on a budget.

"I think it's no secret that prices are going up in pretty much every area right now," Lueke told CNBC.

About two thirds, 65%, of U.S. adults surveyed by CNBC/SurveyMonkey this spring said inflation is the main driver of their financial stress. The same share said they are living paycheck to paycheck. Nearly half feel like they're in a worse financial situation than five years ago.

In January last year, Lueke started a series on social media where she took one grocery list between $50 and $75 and turned it into five different recipes for their families. She was inspired to show people they can still eat well while cutting down on grocery costs.

"I think Americans are a little perplexed when they see news reports of inflation coming down, and yet they don't notice any of their prices coming down," said Lindsay Owens, executive director of the nonprofit think tank Groundwork Collaborative.

There's an important difference between inflation increasing more slowly — a phenomenon called disinflation — and inflation reversing itself, which would lead to prices coming down. Economists call the latter deflation, which is typically associated with a shrinking economy and potential recessions.

Historical data shows that prices rise a lot easier than they fall. When they do fall, it is typically a result of people spending less, which isn't currently the case. Retail sales were up 2.1% year over year in the first quarter of this year and consumer spending jumped in February and March.

"This cycle is a concept called money illusion," said Sabrina Romanoff, a clinical psychologist.

"People with money illusion ... don't take into account the level of inflation in an economy," she said. "So they wrongly believe that a dollar today is worth the same amount that it was the year prior."

Experts have raised concern about possible "pockets of trouble" as total credit card balances in the U.S. spiked to a record high of $1.08 trillion in the third quarter of 2023. Nearly half, 49%, of Americans with credit cards say they are carrying a balance from month to month, according to a November 2023 survey by Bankrate.

Wage-increase data may also seem inconsistent with consumer experience. Wages have been rising since January 2022, but the pace of the increase has been slowing down and, on average, it is just keeping up with rising prices. An analysis from Bankrate estimates the gap between inflation and wages won't fully close until the fourth quarter of 2024.

"For many Americans, wage growth is very overdue," Owens said. "They have gone years, if not decades in some cases, with stagnant wages or small raises."