If Inflation Goes Down, Prices Will Not Go Down
By Jim Bauer
@porwest (102711)
United States
July 18, 2024 8:28am CST
Many people do not understand about inflation, so I thought I would offer a very basic explanation.
Inflation causes prices to go up. We all know that. The key target rate the Fed shoots for is 2%, which is considered a "healthy and sustainable" rate of inflation.
Once inflation happens, it's done. If inflation goes down, prices do not go down. It already occurred. We're stuck with the higher prices, and while the rate of them rising more slows, they will still go higher. Just not as fast.
What happens when inflation slows to 2%? We wait. Hopefully our paychecks rise at around 3% or 4% every year and we gain 1% or 2% of purchasing power back to make up the difference.
But it will take years for us to catch up with the inflation that happened already.
I wrote this due to many conversations I have had with people thinking lower inflation means price reductions. That's not how it works. Your costs will remain what they are now until your paycheck catches up.
I hope that helps.
8 people like this
8 responses
@xFiacre (13895)
• Ireland
18 Jul
@porwest We are sitting on 2% inflation right now but the 11.5% we had for a while there is still sitting like a big festering lump that the 2% is now building on. Prices really ever only go in one direction and that's ok so long as income keeps a bit ahead of it as you say.
2 people like this
@anya12adwi (10246)
• India
18 Jul
Yes, prices don't shoot down.. If the inflation comes down, the profit goes to government and businesses but the prices don't go down for the consumers
1 person likes this
@anya12adwi (10246)
• India
20 Jul
@porwest deflation, it's a rare phenomenon now!! I can say, our farmers do not get the apt wages for their produces but the companies and middlemen capture the profit.. Some also shift their taxes on to the consumers!
1 person likes this
@porwest (102711)
• United States
21 Jul
@anya12adwi Deflation is a horrible economic situation that no one ever wants. Trust me. As for passing along taxes? Every business does, which is why I caution people on taxing the rich. They don't pay it. WE do.
1 person likes this
@porwest (102711)
• United States
18 Jul
@NJChicaa The stock market and prices have nothing to do with each other. There are all sorts of influences on prices. Maybe there is an abundance of eggs suddenly? Prices drop to reduce the surplus. Suddenly a storm floods avocado crops, the price will go up because there are less avocados.
Grocery stores may want to bring customers into their doors, so they reduce prices and take less profits. Sometimes businesses want to move more product so they reduce THEIR price and the store passes that along.
Like I said. Lots of factors here.
As for price drops in general, I am not seeing much of that personally. And you know I know my prices. I can tell you exactly what the price of something is somewhere or who has it the cheapest—so long as it is something I buy of course.
1 person likes this
@cabuyogty (3905)
• Philippines
18 Jul
Thank you for this information. I have learned something good for today's lesson! 
1 person likes this
@porwest (102711)
• United States
21 Jul
@cabuyogty MANY people are not versed in economics. So, don't feel alone. lol
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@cabuyogty (3905)
• Philippines
19 Jul
@porwest i can confess to you guys that i have a difficulty in understanding in terms of economics in my subject!
1 person likes this
@RevivedWarrior (3716)
• India
19 Jul
You have absolutely spot on! Even if inflation rates go down, the prices do not go down. It has only one direction that is up. How fast or slow it goes, is the question. Although capable of bringing the prices down, the economic factors would be in action , so Govt or the sectors involved would not bring the prices down. Inflation is not same everywhere , there are countries where there are hyper inflation. Thanks for sharing your insights!
@porwest (102711)
• United States
9 Sep
I just think it is important for people to understand how this all works. Prices will increase slower or stay the same, but will not go down, aside from variables in supply and demand that could drive some prices one way or the other. But the key here is the only thing that makes the prices more digestible are higher paychecks to come later.
1 person likes this
@akalinus (44344)
• United States
18 Jul
They say that inflation is cooling. Why are the prices in grocery stores still rising? How can they justify their claim when food prices are out of control?
My kids are grown and flown but I feel sorry for people who have to feed teenage boys with hollow legs. Do they even care about families?
@porwest (102711)
• United States
18 Jul
Prices are still rising because inflation isn't stopping. When they say, "Inflation went down," all it means is prices are rising slower. Prices do not recede. If inflation goes to that desired 2%, it still means everything will be 2% more in cost.
As for "caring about families," it's not the grocery stores or the producers setting the prices. They price their goods according to what things cost to make. Inflation makes making things cost more.
As for the government, who were responsible for the inflation, it is CLEAR they don't care because they are trying to take credit for cooling inflation when they started it in the first place.
But that's what Democrats do. They create problems, blame someone else, and then tell you they, and only they can fix them. Meanwhile they continue to spend money we do not have for programs we cannot afford, putting more money into the economy, which CAUSES more inflation.
@everwonderwhy (7383)
•
18 Jul
Thanks. I've just had big raises from my 2 jobs in my paychecks at the start of July financial year 2024-'25.
A great help relieve financial stress.
And we do our best to save so we can keep up with paying our utility bills reasonably.
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