Californians are experiencing increased expenses for goods and services compared to pre-pandemic times, even though the rate of inflation has decreased

During the pandemic, inflation has decreased from its peak two years ago, but the prices of many goods and services continue to rise and remain higher than before COVID-19, according to key economic indicators.

An analysis by the California Legislative Analyst’s Office indicates that prices have increased by approximately 20% overall since 2020, based on the most recent consumer price index data. Recent data from the Bureau of Labor Statistics suggests that prices in California have risen slightly more than the national average in the past few months.

The ongoing increase in prices is contributing to financial challenges for many Californians, despite the economy being generally stable and avoiding a recession, experts say.

While a slowdown in inflation is positive news, prices are not decreasing overall, according to Sarah Bohn, an economist and director of the Public Policy Institute of California Economic Policy Center. She noted that when people go to the grocery store, their total bill is still significantly higher than a few years ago.

Bohn also highlighted that Californians’ wages have not kept pace with inflation, which means that in real terms, it feels like a pay cut for many. She explained that while wages have increased by 15% since before the pandemic, after adjusting for inflation, it’s more akin to a $1.25-an-hour decrease.

This situation is particularly concerning for low- and middle-income families, who have less flexibility in how they spend their resources, according to Bohn.

Nationwide, services are primarily driving ongoing inflation, according to data from the Bureau of Labor Statistics. Prices for goods like new vehicles and items in the food category including meat, poultry, eggs, and fish remained steady from December to January. Overall food prices saw a modest increase of nearly 0.4%, slightly lower than the previous two months. On the other hand, consumer costs for services such as electricity, rent, medical care, airfares, and health and auto insurance all saw rises.

In California, high prices persist for both goods and services. Food banks report that the cost of purchasing food has not decreased, and demand for their services remains high as pandemic aid has ended and inflation continues.

While the San Francisco-Marin Food Bank hasn’t experienced significant price increases for meat and has seen stabilized produce prices, it still faces high prices for some food items. The average price the food bank pays for eggs has increased by $2.27 per dozen over the past eight months.

The Los Angeles Regional Food Bank, which buys 10% of its inventory, has also struggled with high food prices. The food bank now serves an average of 900,000 people per month, two and a half times the monthly average before the pandemic.

In terms of services, some California residents are finding it difficult to obtain affordable auto insurance, with premiums rising by 17.7% from 2023 to 2024, according to Electricity prices have also increased, as regulators have approved rate hikes by major utilities like PG&E.

Rent is a significant driver of services inflation in California, according to Jerry Nickelsburg, a senior economist for the UCLA Anderson Forecast. He noted that while rental rates are slowing (and even decreasing in some areas), average rents are increasing as leases expire and rent-stabilized units become available at market rates.

Rent in California is 38% higher than the national median, according to Zillow. This month, the median rent in the state rose by $5 from the previous month but is $195 less than it was in March 2023.

The personal consumption expenditures price index, which excludes food and energy costs, rose by 0.4% in January from the previous month and by 2.8% from the previous year, according to data from the Commerce Department’s Bureau of Economic Analysis. The Federal Reserve is said to focus more on this index than on the consumer price index because it more accurately reflects actual consumer spending. With continued inflation, it is unlikely that the Fed will cut interest rates anytime soon, which could result in continued sluggishness in home buying, obtaining loans for big-ticket items like cars, and borrowing by businesses.

Nickelsburg does not anticipate the Fed reducing interest rates in the first half of the year, aligning with the expectations of other economists, such as those from Wells Fargo, who stated in a report last month that continued inflation suggests the “road back to 2% inflation likely will have some potholes.”

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