You've probably heard that inflation is finally slowing down, and yet you're finding that prices are still shockingly high on just about everything...from houses, to cars, to groceries. So why are prices still so inflated, and when can we expect them to finally start dropping?
After hitting a 40-year high, inflation is indeed cooling off. But, the prices you’ll encounter, whether in person or online, tell a different story. Here’s why.
How is inflation measured?
The U.S. inflation rate has moderated from the elevated levels seen in 2022, but remains above the Federal Reserve’s long-run target of 2%. As of September 2025, the Consumer Price Index (CPI) — which tracks price changes for a broad basket of goods and services — was about 3.0% higher than a year earlier, indicating that overall prices continue to rise, albeit more slowly than in the recent past. This reflects a decrease from the double-digit inflation figures seen in 2022 but shows that inflation pressures persist in the economy. For consumers, that means it’s still important to build flexibility into your budget and long-term plans, as even modest inflation can affect everyday expenses, savings goals, and future purchasing power.
Why are prices still so high?
In an effort to keep runaway inflation in check, the Federal Reserve has raised its interest rate numerous times since the pandemic. When this happens, banks and lenders are forced to raise their rates as well. This makes it more expensive for consumers to take out large loans and utilize their lines of credit. The hope is that this will trigger a decrease in consumer spending, which will push businesses to lower their prices, or, at the very least, resist raising prices further.
Unfortunately, though, this did not quite play out as planned. Some sectors, such as the real estate industry, which is strongly affected by rising rates, have cooled off significantly and prices have dropped as anticipated. Other parts of the economy, though, such as the service sector, were not impacted by rising interest rates. Demand for services, which practically halted during the pandemic, is still strong and consumers are willing to pay the high prices that service providers continue to charge. And those prices show no signs of dropping anytime soon.
In addition, there are still several commodities selling at stubbornly high prices due to the lingering impact of the pandemic, as well as other unrelated factors. These include:
- Used cars. At first, demand for used cars outpaced supply due to pandemic concerns that had people avoiding public transportation. More recently, though, the limited supply is due to a massive worldwide shortage of microchips and replacement parts. All ofthis naturally drives prices up.
- Eggs. Eggs sold at record prices last spring when bird flu killed and infected thousands of egg-laying hens. The price has since dropped but is still not back at pre-pandemic levels.
- Cereal and baked goods. Just as food prices were starting to recover from supply chain chokeholds a few years ago, the war in Ukraine, a country that is a major exporter of grain, drove them right back up again.
- Fuel. Gas prices also peaked last year due to the war in Ukraine. They’ve since fallen but have not gone back to pre-pandemic levels.
- Insurance. Premium rates on home and auto insurance have risen significantly, and they aren’t falling anytime soon. Labor shortages, which make repairs on cars and homes more expensive, as well as a dip in the supply of cars and homes, makes coverage more expensive for the insurance companies. This cost is then passed on to the consumer.
- Rent. The housing market is still suffering from a thin supply as new construction races to catch up with the post-pandemic demand, which is largely driven by the mass exodus from big cities.
There are several more examples like these that continue selling at high prices for similar reasons. So, while inflation as a whole may be improving, the average consumer is still feeling the pinch in their wallets in a big way.
When will prices start dropping?
Cash-strapped Americans waiting for groceries to become affordable again may have a long wait ahead. It’s important to note, though, that a dramatic decrease in prices would actually be harmful for the economy. When prices plunge, consumers tend to hold off on large purchases as they wait for prices to fall further. At the same time, businesses spend less as they pull in less revenue. These dual factors can lead to a recession, or worse, a depression.
The good news is that prices are beginning to drop and inflation has already shown signs of cooling. While no one can promise that prices will ever go back to pre-pandemic levels, it does seem as if we’ve gotten past the peak of post-pandemic inflation.
The business headlines and your grocery bill may not seem to be living in the same reality, but as explained here in this blog, there’s a reason for the dichotomy.
