Why Everything Still Feels Expensive Even When Inflation ‘Falls’
Inflation is a rate, not a reset button. Here’s why prices can keep climbing, why essentials hurt most, and what paychecks must do to catch up.
By TheMurrow Editorial
January 19, 2026
Key Points
- 1Know the difference: inflation is the rate of price change, so “lower inflation” still means prices are rising.
- 2Track essentials: shelter, food, and medical care keep climbing and dominate budgets, making national averages feel irrelevant.
- 3Watch real earnings: affordability improves only when wages outpace inflation—and recent gains have been modest and fragile.
The headline says inflation is cooling. Your receipt says otherwise.
That disconnect—good news in macro data, bad news in the checkout line—has become one of the defining economic frustrations of the past few years. It’s also a language problem. “Inflation” sounds like a synonym for “prices,” so when inflation falls, people naturally expect prices to fall too.
But inflation isn’t the price level. It’s the rate at which prices change. When the rate slows, the climb continues—just at a gentler pace. And for many households, especially renters and anyone paying for food, healthcare, and insurance, even a gentler pace can feel like a squeeze that never ends.
“Inflation falling doesn’t mean prices are falling. It means prices are rising more slowly.”
— — TheMurrow Editorial
Recent U.S. data illustrate the point. The Consumer Price Index (CPI-U) rose 0.3% in December 2025 (seasonally adjusted) and stood 2.7% higher than a year earlier. Core CPI—excluding food and energy—was up 2.6% year-over-year. Those figures mark a cooler inflation environment than the peak years. They also confirm a basic reality: prices are still going up.
2.7%
CPI-U was 2.7% higher than a year earlier (12 months ending December 2025), showing inflation cooled but prices still rose.
Inflation is a speedometer, not an odometer
Most public confusion starts with a simple mix-up. Inflation measures the rate of change in prices, not the price level itself. Imagine prices as a car traveling uphill.
- The price level is where the car is on the hill.
- Inflation is how fast it’s climbing.
When inflation slows from 6% to 3%, the car doesn’t roll backward. It keeps going up; the engine just eases off.
- The price level is where the car is on the hill.
- Inflation is how fast it’s climbing.
When inflation slows from 6% to 3%, the car doesn’t roll backward. It keeps going up; the engine just eases off.
Why “lower inflation” doesn’t reverse the past
A lower inflation rate does not erase earlier increases. If a grocery bill jumped from $100 to $120 during a high-inflation year, a return to “normal” inflation doesn’t bring it back to $100. It means next year it might rise to $123 instead of $127.
The only broad-based way prices fall across the economy is deflation—an overall decline in the general price level. Deflation is rare in the modern U.S. economy and often appears alongside recessions, weak demand, and job losses. People might say they want prices to fall; few want the economic conditions that commonly accompany persistent deflation.
The only broad-based way prices fall across the economy is deflation—an overall decline in the general price level. Deflation is rare in the modern U.S. economy and often appears alongside recessions, weak demand, and job losses. People might say they want prices to fall; few want the economic conditions that commonly accompany persistent deflation.
What the CPI is telling us right now
According to the Bureau of Labor Statistics, CPI-U rose 0.3% in December 2025, and the index was up 2.7% over the 12 months ending December 2025. Core CPI was up 2.6% year-over-year. Those are meaningful indicators of cooling inflation, but they are not indicators of falling prices. They are evidence the pace of increase has moderated.
“A ‘better’ inflation number can still mean another month of price increases.”
— — TheMurrow Editorial
0.3%
CPI-U rose 0.3% in December 2025 (seasonally adjusted), a monthly increase that still adds to the overall price level.
The ratchet effect: why the price level still feels stuck high
Even when inflation is lower, households live inside a stubborn arithmetic: the price level often ratchets upward after a surge and rarely returns to its old baseline. That’s not a conspiracy; it’s the compounding nature of price changes.
A few years of elevated inflation can permanently reset what “normal” feels like. People don’t experience inflation as a chart—they experience it as a memory: what rent used to be, what a cart of groceries used to cost, what a routine doctor visit used to mean for a budget.
A few years of elevated inflation can permanently reset what “normal” feels like. People don’t experience inflation as a chart—they experience it as a memory: what rent used to be, what a cart of groceries used to cost, what a routine doctor visit used to mean for a budget.
Why the old reference points don’t let go
Consumer psychology matters here. Most households compare today’s prices to a mental benchmark—often pre-surge years—rather than to last month. A 2.7% annual inflation rate can feel intolerable if the starting point is already much higher than it was a few years ago.
That’s why “inflation is down” can feel like a message from a different country. Lower inflation addresses the trajectory, not the damage already done to affordability.
That’s why “inflation is down” can feel like a message from a different country. Lower inflation addresses the trajectory, not the damage already done to affordability.
The quiet complication: different baskets, different realities
The CPI is designed to measure an “average” basket of goods and services. Yet “average” rarely captures anyone’s lived experience perfectly. If your personal budget is heavily weighted toward categories that continue rising quickly, the ratchet feels tighter—and the cooling rate offers little comfort.
Key Insight
Lower inflation changes the pace of increases, not the level you’re paying today—especially if your budget is dominated by categories still rising quickly.
The essentials that won’t let up: shelter, food, and medical care
The simplest answer to “Why does everything still feel expensive?” is also the most concrete: many of the most visible, most unavoidable costs are still rising.
In the December 2025 CPI report, the BLS singled out shelter as the major driver: shelter rose 0.4% in the month and was described as the largest factor in the monthly increase. Over the year from December 2024 to December 2025, shelter increased 3.2%.
Food and medical care delivered their own reminders. The CPI food index rose 0.7% in December and was up 3.1% over the year ending December 2025. Medical care rose 0.4% in December and was up 3.2% over the year.
In the December 2025 CPI report, the BLS singled out shelter as the major driver: shelter rose 0.4% in the month and was described as the largest factor in the monthly increase. Over the year from December 2024 to December 2025, shelter increased 3.2%.
Food and medical care delivered their own reminders. The CPI food index rose 0.7% in December and was up 3.1% over the year ending December 2025. Medical care rose 0.4% in December and was up 3.2% over the year.
0.4%
Shelter rose 0.4% in December 2025 and was cited as the largest factor in the monthly CPI increase.
Why these categories dominate your sense of “inflation”
Some prices can fall—electronics are a classic example—but they don’t define daily life. The categories that shape financial stress share two traits:
- They’re frequent (food).
- They’re large (housing).
- They’re hard to substitute (medical care).
A family might buy a television once every few years, but they buy groceries every week. They pay rent or a mortgage every month. They can postpone a vacation; they can’t postpone shelter.
- They’re frequent (food).
- They’re large (housing).
- They’re hard to substitute (medical care).
A family might buy a television once every few years, but they buy groceries every week. They pay rent or a mortgage every month. They can postpone a vacation; they can’t postpone shelter.
“The prices you notice most are the ones you can’t avoid.”
— — TheMurrow Editorial
A real-world example: two households, two inflation stories
Consider two neighbors in the same city.
- Household A owns a home with an older, locked-in mortgage and spends relatively less on rent-equivalent housing costs month to month.
- Household B rents and renews annually in a tight market; shelter inflation hits their budget directly.
Both live under the same national CPI. Household B experiences a much harsher “personal inflation” because shelter is a dominant line item and is still climbing. National averages can be accurate and still feel irrelevant.
- Household A owns a home with an older, locked-in mortgage and spends relatively less on rent-equivalent housing costs month to month.
- Household B rents and renews annually in a tight market; shelter inflation hits their budget directly.
Both live under the same national CPI. Household B experiences a much harsher “personal inflation” because shelter is a dominant line item and is still climbing. National averages can be accurate and still feel irrelevant.
“Inflation is average; your inflation is personal”
The CPI measures price changes for a typical basket. Your basket is not typical.
Different households experience different inflation rates depending on their spending patterns and constraints. The biggest drivers include:
- Renter vs. homeowner, and whether a mortgage is new or old
- Region and city, since housing markets and service costs differ
- Family size and childcare needs, which reshape the household basket
- Health status, which changes exposure to medical costs
- Commuting patterns, affecting gasoline, car insurance, and repairs
None of that contradicts the CPI. It explains why national progress can coexist with personal strain.
Different households experience different inflation rates depending on their spending patterns and constraints. The biggest drivers include:
- Renter vs. homeowner, and whether a mortgage is new or old
- Region and city, since housing markets and service costs differ
- Family size and childcare needs, which reshape the household basket
- Health status, which changes exposure to medical costs
- Commuting patterns, affecting gasoline, car insurance, and repairs
None of that contradicts the CPI. It explains why national progress can coexist with personal strain.
When “core inflation” doesn’t match lived experience
Economists often point to “core” inflation—excluding food and energy—to identify underlying trends. That can be useful for policy. It can also be emotionally tone-deaf.
Food and energy are excluded precisely because they’re volatile. Households notice them precisely because they’re unavoidable. When groceries rise 3.1% over the year and jump 0.7% in a single month (as in December 2025), families feel it even if the “core” story sounds calmer.
Food and energy are excluded precisely because they’re volatile. Households notice them precisely because they’re unavoidable. When groceries rise 3.1% over the year and jump 0.7% in a single month (as in December 2025), families feel it even if the “core” story sounds calmer.
The fairness question readers are asking
Many people aren’t merely asking, “What is inflation?” They’re asking, “Why does the official story seem to discount my reality?” The honest answer is that the CPI is built to be a broad gauge, not a tailored diagnosis. It is a national tool. Your budget is personal.
What makes your “personal inflation” differ from the CPI
- ✓Whether you rent or own—and whether your mortgage is new or old
- ✓Where you live (region/city)
- ✓Family size and childcare needs
- ✓Health status and medical spending exposure
- ✓Commuting habits (gas, car insurance, repairs)
Housing affordability is structural—and inflation isn’t the whole culprit
If there’s one category where “inflation is down” provides the least relief, it’s housing. The pain here often reflects structural constraints: supply shortages, local zoning and permitting realities, and the mathematics of interest rates. Lower inflation can help over time, but it doesn’t magically create more places to live.
Harvard’s Joint Center for Housing Studies put hard numbers to the strain. In 2023, the center reported 22.6 million renter households were cost-burdened, meaning they spent more than 30% of income on rent and utilities. Even more stark: 12.1 million were severely cost-burdened, spending more than 50%.
The burden is no longer confined to the poorest households. Harvard also found that middle-income renters ($30,000–$75,000) made up 41% of cost-burdened households in 2023. That detail matters because it explains why “cost of living” anxiety persists even when some economic indicators improve.
Harvard’s Joint Center for Housing Studies put hard numbers to the strain. In 2023, the center reported 22.6 million renter households were cost-burdened, meaning they spent more than 30% of income on rent and utilities. Even more stark: 12.1 million were severely cost-burdened, spending more than 50%.
The burden is no longer confined to the poorest households. Harvard also found that middle-income renters ($30,000–$75,000) made up 41% of cost-burdened households in 2023. That detail matters because it explains why “cost of living” anxiety persists even when some economic indicators improve.
22.6 million
In 2023, Harvard reported 22.6 million renter households were cost-burdened (spending more than 30% of income on rent and utilities).
What shelter inflation means in practice
The CPI shows shelter up 3.2% over the year ending December 2025 and up 0.4% in December alone. For a renter, that can translate quickly into renewal shock. For a would-be homebuyer, the challenge isn’t merely higher prices—it’s higher monthly payments, especially when borrowing costs are elevated.
A cooling inflation rate can stabilize the situation. It can’t rewind the market.
A cooling inflation rate can stabilize the situation. It can’t rewind the market.
Why housing hits renters and buyers differently
Before
- Renter: renewal shock when shelter rises; annual leases reset quickly; budget exposure is direct
After
- Buyer: monthly payment pain from elevated borrowing costs; affordability depends on rates as much as prices
Why companies don’t just cut prices
Once consumers understand the inflation-versus-price-level distinction, a second question tends to follow: if inflation is normalizing, why don’t businesses lower prices?
There are several non-mysterious reasons prices can be “sticky” on the way down:
- Input costs remain higher: labor, rent, insurance, and financing costs don’t automatically fall when inflation cools.
- Businesses avoid price cuts unless demand weakens sharply: lowering prices can be hard to reverse and can train customers to wait for discounts.
- Some sectors adjust slowly: contracts, supply agreements, and the inertia of pricing systems can delay changes.
That doesn’t absolve every company of every decision. Some industries did see controversy over margins during high-inflation periods, and public skepticism about corporate pricing deserves a fair hearing. Yet a blanket assumption—“inflation is down, so prices should drop”—ignores how modern pricing works.
There are several non-mysterious reasons prices can be “sticky” on the way down:
- Input costs remain higher: labor, rent, insurance, and financing costs don’t automatically fall when inflation cools.
- Businesses avoid price cuts unless demand weakens sharply: lowering prices can be hard to reverse and can train customers to wait for discounts.
- Some sectors adjust slowly: contracts, supply agreements, and the inertia of pricing systems can delay changes.
That doesn’t absolve every company of every decision. Some industries did see controversy over margins during high-inflation periods, and public skepticism about corporate pricing deserves a fair hearing. Yet a blanket assumption—“inflation is down, so prices should drop”—ignores how modern pricing works.
A practical way to think about it
A restaurant that raised menu prices when food costs spiked might still be paying higher rent, higher wages, and higher insurance. Even if ingredient inflation cools, those other costs can keep the menu where it is. The restaurant doesn’t need to be greedy to be unable to roll prices back.
Key takeaway: “sticky” prices
Even when inflation cools, many business costs stay elevated (rent, wages, insurance, financing). Without a sharp demand drop, broad price rollbacks are unlikely.
Paychecks vs. prices: why “real earnings” still feel fragile
If prices aren’t falling, households need something else to improve affordability: real income growth—wages that rise faster than inflation.
The Bureau of Labor Statistics’ “Real Earnings” release provides a useful snapshot. In December 2025, real average hourly earnings were unchanged from November: nominal hourly earnings rose 0.3%, and CPI-U also rose 0.3%. Real average weekly earnings fell 0.3% over the month, largely because the average workweek was shorter.
Over the year from December 2024 to December 2025, real average hourly earnings increased 1.1%. That’s a positive trend. It’s also not the kind of number that quickly repairs budgets after years of elevated prices.
The Bureau of Labor Statistics’ “Real Earnings” release provides a useful snapshot. In December 2025, real average hourly earnings were unchanged from November: nominal hourly earnings rose 0.3%, and CPI-U also rose 0.3%. Real average weekly earnings fell 0.3% over the month, largely because the average workweek was shorter.
Over the year from December 2024 to December 2025, real average hourly earnings increased 1.1%. That’s a positive trend. It’s also not the kind of number that quickly repairs budgets after years of elevated prices.
1.1%
From December 2024 to December 2025, real average hourly earnings increased 1.1%—positive, but modest after years of higher prices.
Why even positive real wage growth can feel disappointing
A 1.1% real gain means buying power is improving, but slowly. Meanwhile, households face large fixed commitments—rent, utilities, healthcare—that don’t pause while wages catch up. Many families also experienced uneven wage growth: some saw strong raises; others saw little movement.
The month-to-month data underscore the fragility. If real hourly earnings are flat in a month when inflation is modest, the margin for error is thin. A single sharp rise in food, a rent renewal, or a medical bill can overwhelm small improvements.
The month-to-month data underscore the fragility. If real hourly earnings are flat in a month when inflation is modest, the margin for error is thin. A single sharp rise in food, a rent renewal, or a medical bill can overwhelm small improvements.
What to watch as a reader
If you’re trying to judge whether life will feel less expensive, watch the relationship between:
- Real wage growth (wages adjusted for inflation)
- Shelter inflation (because it dominates budgets)
- Food and medical costs (because they’re frequent and unavoidable)
Policy debates will focus on headline inflation. Household budgets will be decided in the details.
- Real wage growth (wages adjusted for inflation)
- Shelter inflation (because it dominates budgets)
- Food and medical costs (because they’re frequent and unavoidable)
Policy debates will focus on headline inflation. Household budgets will be decided in the details.
Three signals that matter for everyday affordability
- ✓Real wage growth (wages adjusted for inflation)
- ✓Shelter inflation (dominates most budgets)
- ✓Food and medical costs (frequent and hard to avoid)
What all this means for your budget—and for the politics of “good news”
The public argument over inflation often turns into a fight over whether things are “good” or “bad.” The more accurate framing is: some indicators have improved, and many households still feel pinched for reasons the indicators don’t resolve quickly.
Cooling inflation is a genuine achievement in macroeconomic terms. The December 2025 CPI data—2.7% year-over-year headline inflation and 2.6% core—signal that the worst of the surge is not the baseline anymore. Yet the same report shows shelter up 0.4% in the month, food up 0.7%, and medical care up 0.4%. The categories people can’t escape continue to climb.
Cooling inflation is a genuine achievement in macroeconomic terms. The December 2025 CPI data—2.7% year-over-year headline inflation and 2.6% core—signal that the worst of the surge is not the baseline anymore. Yet the same report shows shelter up 0.4% in the month, food up 0.7%, and medical care up 0.4%. The categories people can’t escape continue to climb.
Practical takeaways
A few grounded implications follow from the data and the structure of household costs:
- Expect prices to keep rising if inflation remains positive—just more slowly.
- Don’t wait for a broad, economy-wide “price reset.” That would require deflation, which is uncommon and often painful.
- Treat “your inflation” as personal: if housing dominates your budget, national averages will understate your stress.
- Pay attention to real earnings, not just raises, and remember that month-to-month real gains can be volatile.
The larger point is not that the data are wrong or that households are imagining things. The point is that “inflation is down” answers a different question than “Why is my life still expensive?”
People aren’t confused because they’re bad at economics. They’re confused because the economy is speaking in rates while they’re living in levels.
- Expect prices to keep rising if inflation remains positive—just more slowly.
- Don’t wait for a broad, economy-wide “price reset.” That would require deflation, which is uncommon and often painful.
- Treat “your inflation” as personal: if housing dominates your budget, national averages will understate your stress.
- Pay attention to real earnings, not just raises, and remember that month-to-month real gains can be volatile.
The larger point is not that the data are wrong or that households are imagining things. The point is that “inflation is down” answers a different question than “Why is my life still expensive?”
People aren’t confused because they’re bad at economics. They’re confused because the economy is speaking in rates while they’re living in levels.
Bottom line
“Inflation is down” describes a slower rate of increases. Your budget reflects the price level you’re paying now—especially for shelter, food, and healthcare.
T
About the Author
TheMurrow Editorial is a writer for TheMurrow covering explainers.
Frequently Asked Questions
If inflation is down, why are groceries still so expensive?
Because lower inflation means grocery prices are rising more slowly, not falling. The CPI food index was up 3.1% over the year ending December 2025 and rose 0.7% in December alone. Those increases add to prior years’ increases. Unless broad deflation occurs, the level tends to stay elevated even when the pace cools.
What would it take for prices to actually fall?
Broad price declines across the economy are called deflation. Deflation is rare and often associated with recessions and weak demand. Some individual prices can fall (certain goods categories), but an economy-wide decline is uncommon. Most “good inflation news” means price increases are moderating, not reversing.
Why does housing matter so much in inflation reports?
Housing is a large share of most budgets, so changes in shelter costs heavily influence both official inflation measures and lived experience. In December 2025, shelter rose 0.4% in the month and was cited by the BLS as the largest factor in the monthly CPI increase. Over the year, shelter increased 3.2%.
Is the CPI lying about inflation?
The CPI is designed to measure average price changes for a typical consumer basket, not each household’s reality. Your spending patterns—renting vs. owning, location, family size, healthcare needs—can make your “personal inflation” higher or lower than the CPI. The index can be accurate and still feel mismatched to your budget.
Are wages keeping up with inflation?
It depends on the timeframe. In December 2025, real average hourly earnings were unchanged from the prior month because wages and prices rose at the same rate (0.3%). Over the year, real average hourly earnings were up 1.1% (Dec 2024 to Dec 2025). That’s progress, but modest relative to the earlier surge in prices.
Why don’t companies cut prices when inflation falls?
Prices often become “sticky” because businesses still face higher costs for labor, rent, insurance, and financing, and because firms usually cut prices only when demand drops sharply. Even if the pace of cost increases slows, many costs remain elevated compared to pre-surge levels, making widespread rollbacks less likely.
