Why Things Feel More Expensive Even When Inflation Falls
Inflation slowing isn’t the same as prices dropping. Here’s how CPI, housing, and wages determine whether life actually feels more affordable.
By TheMurrow Editorial
January 25, 2026
Key Points
- 1Understand the basics: falling inflation usually means prices still rise—just more slowly—unless deflation occurs, which is rare and risky.
- 2Track what hits budgets most: shelter, food, and energy can keep climbing even when headline CPI looks “normal” near mid-2%.
- 3Compare paychecks to prices: real hourly gains can stall, and real weekly earnings can fall if workweeks shrink despite higher nominal wages.
The headline says inflation is down. Your grocery receipt says you’re being lied to.
Both can be true at the same time, and the gap between them is where a lot of public anger lives. “Inflation” is a technical word that measures how fast prices are changing—not whether today’s prices feel fair, or whether last year’s shock ever got reversed.
In the latest official data, prices in the U.S. are still rising. They’re simply rising more slowly than they did during the worst of the post-pandemic surge. That slowdown is real. So is the sting you feel at the checkout line, the landlord’s renewal email, or the insurance bill that arrives with a shrug attached.
A useful way to read the moment: the country may be exiting the emergency phase of inflation, but households are still paying the full cost of what already happened—and some of the biggest budget items are still climbing.
When inflation falls, it usually means prices are still rising—just more slowly.
— — TheMurrow Editorial
Inflation down doesn’t mean prices down: the core misunderstanding
People hear “inflation is down” and reasonably assume prices should be falling. Economists mean something narrower: inflation is the rate of change in prices, not the price level itself. If inflation drops from 8% to 3%, prices are still rising—just not as quickly.
Disinflation vs. deflation, in plain English
Three scenarios matter:
- High inflation (say 8%): prices rise fast and budgets get hit immediately.
- Lower inflation (say 3%): prices still rise, but the pace is less punishing. Economists call this disinflation—a slowing of inflation.
- Deflation (negative inflation): prices fall broadly across the economy. It’s rare, and often linked to recessions and debt stress.
Most of what Americans are experiencing now is disinflation, not deflation. The damage from earlier high inflation doesn’t “unhappen.” Lower inflation doesn’t roll prices back; it simply slows the next round of increases.
- High inflation (say 8%): prices rise fast and budgets get hit immediately.
- Lower inflation (say 3%): prices still rise, but the pace is less punishing. Economists call this disinflation—a slowing of inflation.
- Deflation (negative inflation): prices fall broadly across the economy. It’s rare, and often linked to recessions and debt stress.
Most of what Americans are experiencing now is disinflation, not deflation. The damage from earlier high inflation doesn’t “unhappen.” Lower inflation doesn’t roll prices back; it simply slows the next round of increases.
The ratchet effect: why prices rarely “reset”
After a high-inflation period, the price level tends to move like a ratchet: up sharply, then up more gently. Broad price declines across the entire economy are unusual for a reason—falling prices can signal collapsing demand, weaker wages, and financial instability.
For households, the takeaway is uncomfortable but clarifying: the debate is no longer whether prices rose—they did. The debate is whether incomes, rents, and essential costs are adjusting in a way that restores purchasing power.
For households, the takeaway is uncomfortable but clarifying: the debate is no longer whether prices rose—they did. The debate is whether incomes, rents, and essential costs are adjusting in a way that restores purchasing power.
Disinflation is a slowdown, not a refund.
— — TheMurrow Editorial
What the latest CPI data actually says—and why it still hurts
The most widely cited inflation gauge is the Consumer Price Index (CPI) from the Bureau of Labor Statistics. In the latest release covering December 2025, the numbers describe an economy where inflation has cooled but not vanished.
Here are the key points from the BLS report:
- CPI-U rose 0.3% in December 2025 (seasonally adjusted).
- Over the prior year, CPI-U increased 2.7% (December 2025 vs. December 2024).
- Core CPI (excluding food and energy) rose 0.2% in December and was up 2.6% over 12 months.
Those are not runaway figures. They are close to what many policymakers consider a “normal” inflation environment. Yet normal inflation can still feel abnormal when the price level has already shifted upward over the past few years.
Here are the key points from the BLS report:
- CPI-U rose 0.3% in December 2025 (seasonally adjusted).
- Over the prior year, CPI-U increased 2.7% (December 2025 vs. December 2024).
- Core CPI (excluding food and energy) rose 0.2% in December and was up 2.6% over 12 months.
Those are not runaway figures. They are close to what many policymakers consider a “normal” inflation environment. Yet normal inflation can still feel abnormal when the price level has already shifted upward over the past few years.
2.7%
CPI-U increased 2.7% over the year (December 2025 vs. December 2024)—cooler than the surge, but still positive price growth.
0.3%
CPI-U rose 0.3% in December 2025 (seasonally adjusted), showing prices were still increasing in the latest month.
2.6%
Core CPI was up 2.6% over 12 months, excluding food and energy—near “normal” by policy standards, but not a price rollback.
Where the pressure shows up in real life
Households don’t experience “the average basket.” They experience the bills that hit most often and cost the most.
In December 2025 CPI details:
- Shelter rose 0.4% in December and was +3.2% over the last year—a major reason budgets still feel tight.
- Food increased 0.7% in December (food at home and away from home both up).
- Energy rose 0.3% in December.
Relief exists in pockets, but it can be easy to miss if it doesn’t match your life. The same CPI material shows used cars and trucks down 1.1% in December and communication down 1.9%—helpful, but not necessarily the line items that dominate every household budget.
In December 2025 CPI details:
- Shelter rose 0.4% in December and was +3.2% over the last year—a major reason budgets still feel tight.
- Food increased 0.7% in December (food at home and away from home both up).
- Energy rose 0.3% in December.
Relief exists in pockets, but it can be easy to miss if it doesn’t match your life. The same CPI material shows used cars and trucks down 1.1% in December and communication down 1.9%—helpful, but not necessarily the line items that dominate every household budget.
Practical takeaway
If your largest expenses are rent, groceries, utilities, and insurance-like bills, the CPI’s “cooling” can feel abstract. Inflation slowing is real; the composition of what’s still rising is what keeps the pain vivid.
The CPI can cool while your most important bills keep climbing.
— — TheMurrow Editorial
CPI vs. PCE: why two inflation measures can tell slightly different stories
Readers see CPI in headlines and wonder why Federal Reserve officials sometimes cite something else. The Fed’s preferred inflation gauge is PCE inflation, produced by the Bureau of Economic Analysis. Both attempt to measure price changes, but they differ in weights and methodology, which can lead to modest differences.
What PCE inflation shows right now
On the BEA’s PCE measures:
- Core PCE inflation was +2.8% year over year in November 2025 (the latest year-over-year figure shown on BEA’s core PCE page at the time of the research).
- In the BEA Personal Income and Outlays release covering October and November 2025, the PCE price index increased 0.2% in October and 0.2% in November.
- The core PCE price index also rose 0.2% in October and 0.2% in November.
Those monthly readings align with the “disinflation” narrative: steady, moderate increases rather than the spikes households associate with the earlier phase of the inflation surge.
- Core PCE inflation was +2.8% year over year in November 2025 (the latest year-over-year figure shown on BEA’s core PCE page at the time of the research).
- In the BEA Personal Income and Outlays release covering October and November 2025, the PCE price index increased 0.2% in October and 0.2% in November.
- The core PCE price index also rose 0.2% in October and 0.2% in November.
Those monthly readings align with the “disinflation” narrative: steady, moderate increases rather than the spikes households associate with the earlier phase of the inflation surge.
2.8%
Core PCE inflation was +2.8% year over year in November 2025, per the BEA—close to, but not identical with, CPI-based readings.
Why it matters which measure you follow
CPI and PCE generally point in the same direction, but they can differ in the pace they report. That difference can create a messaging problem:
- A household hears “2-point-something” inflation and expects relief.
- A policymaker sees inflation still above target and stays cautious.
- A renter sees shelter up 3.2% year over year and feels the system is grading itself on a curve.
Both are looking at legitimate data. They’re just looking through different lenses.
- A household hears “2-point-something” inflation and expects relief.
- A policymaker sees inflation still above target and stays cautious.
- A renter sees shelter up 3.2% year over year and feels the system is grading itself on a curve.
Both are looking at legitimate data. They’re just looking through different lenses.
Practical takeaway
When you see a number, ask two questions: Which index is it? And which categories are doing the work? A “2.7% CPI” economy can still be a “rent is up again” household.
Why paychecks don’t feel like they’re catching up
Even if inflation is moderating, many people judge the economy by one standard: Do I have more room after paying for necessities? That’s a purchasing-power question, and it depends on wages relative to prices.
The BLS tracks inflation-adjusted earnings. The latest data shows a mixed picture.
- Real average hourly earnings were unchanged from November to December 2025 (seasonally adjusted).
- That flat result occurred because nominal hourly earnings rose 0.3% while CPI-U also rose 0.3% in the same month.
- Over the year December 2024 to December 2025, real average hourly earnings increased 1.1%.
- Real average weekly earnings fell 0.3% over the month, reflecting not only flat real hourly earnings but also a decline in the average workweek.
The BLS tracks inflation-adjusted earnings. The latest data shows a mixed picture.
- Real average hourly earnings were unchanged from November to December 2025 (seasonally adjusted).
- That flat result occurred because nominal hourly earnings rose 0.3% while CPI-U also rose 0.3% in the same month.
- Over the year December 2024 to December 2025, real average hourly earnings increased 1.1%.
- Real average weekly earnings fell 0.3% over the month, reflecting not only flat real hourly earnings but also a decline in the average workweek.
The difference between “better” and “better enough”
A 1.1% year-over-year gain in real hourly earnings is a positive sign. Yet it can still feel insufficient after a period when the price level jumped and never came back down.
Households also experience earnings unevenly. A national average can hide:
- workers with strong raises,
- workers with none, and
- workers whose hours have been cut back.
The BLS point about weekly earnings matters because families spend weekly. A smaller workweek translates into less take-home pay, even when hourly pay holds up.
Households also experience earnings unevenly. A national average can hide:
- workers with strong raises,
- workers with none, and
- workers whose hours have been cut back.
The BLS point about weekly earnings matters because families spend weekly. A smaller workweek translates into less take-home pay, even when hourly pay holds up.
Case study: the “flat raise” household
Consider a worker whose nominal pay rises about as fast as prices in a given month—exactly what happened nationally in December 2025 (both +0.3%). On paper, the worker didn’t lose purchasing power. In practice, the worker still confronts higher rent renewal offers, more expensive grocery trips, and a budget shaped by the cumulative increases of the last few years.
That’s why “inflation down” can feel like a semantic victory rather than a lived one.
That’s why “inflation down” can feel like a semantic victory rather than a lived one.
Practical takeaway
Watch real weekly earnings, not just hourly pay. And remember: even positive real wage growth has to outrun not only today’s inflation, but the lingering higher price level created during the surge.
The essentials problem: why the “average basket” doesn’t match your life
The CPI is an average of many categories weighted to reflect typical urban consumer spending. Households experience something narrower and more emotionally salient: things they buy frequently and bills they can’t dodge.
Two categories highlighted in the CPI details underscore why many households remain frustrated:
- Shelter: +3.2% year over year (December 2025).
- Medical care: +3.2% year over year (December 2025).
If shelter costs are rising faster than overall inflation, many renters will experience an inflation rate that feels higher than the headline. Even homeowners can be affected indirectly through insurance and local cost pressures (the CPI’s shelter measure is large partly because housing is central to spending).
Two categories highlighted in the CPI details underscore why many households remain frustrated:
- Shelter: +3.2% year over year (December 2025).
- Medical care: +3.2% year over year (December 2025).
If shelter costs are rising faster than overall inflation, many renters will experience an inflation rate that feels higher than the headline. Even homeowners can be affected indirectly through insurance and local cost pressures (the CPI’s shelter measure is large partly because housing is central to spending).
Salience matters: groceries and gas are “felt” more often
The CPI can report moderate year-over-year inflation while families still feel squeezed because:
- Food rose 0.7% in December 2025—a monthly move that stands out because grocery shopping is frequent.
- Energy prices move around, but energy was up 0.3% in December, and fuel costs are psychologically loud because they’re posted on signs and paid in visible increments.
Meanwhile, declines in categories such as used cars and trucks (-1.1% in December) and communication (-1.9% in December) may not register if you’re not shopping for a vehicle or changing phone plans.
- Food rose 0.7% in December 2025—a monthly move that stands out because grocery shopping is frequent.
- Energy prices move around, but energy was up 0.3% in December, and fuel costs are psychologically loud because they’re posted on signs and paid in visible increments.
Meanwhile, declines in categories such as used cars and trucks (-1.1% in December) and communication (-1.9% in December) may not register if you’re not shopping for a vehicle or changing phone plans.
Case study: renter vs. homeowner inflation
Two households can live in the same city and feel entirely different economies.
- A renter faces renewal shocks and immediate pass-through of local housing demand.
- A homeowner with a fixed mortgage may be insulated from the monthly rent cycle but still faces rising costs elsewhere.
Both see “2.7% CPI,” but one may be living a personal inflation rate that’s higher because shelter dominates their budget.
- A renter faces renewal shocks and immediate pass-through of local housing demand.
- A homeowner with a fixed mortgage may be insulated from the monthly rent cycle but still faces rising costs elsewhere.
Both see “2.7% CPI,” but one may be living a personal inflation rate that’s higher because shelter dominates their budget.
Practical takeaway
When evaluating your own situation, build a simple “personal CPI” using your top categories—rent/mortgage, groceries, utilities, transportation. The headline number is informative; your budget is decisive.
Why housing inflation feels out of sync—and why it drives the mood
Shelter is one of the largest components inside CPI. That’s appropriate because housing is most households’ biggest expense. It’s also why even modest shelter increases can keep overall inflation elevated—and keep the public’s experience of inflation intense.
In December 2025, the BLS reported:
- Shelter up 0.4% in the month
- Shelter up 3.2% over the year
In December 2025, the BLS reported:
- Shelter up 0.4% in the month
- Shelter up 3.2% over the year
The lived reality: shelter is a “big fixed bill”
A $20 increase in a phone plan is irritating. A $200 increase in rent is structural. Shelter costs reset household behavior:
- fewer discretionary purchases,
- delayed medical care,
- increased credit card reliance,
- postponed saving.
So even if inflation is moderating in many categories, shelter can keep households feeling trapped in a high-cost regime.
- fewer discretionary purchases,
- delayed medical care,
- increased credit card reliance,
- postponed saving.
So even if inflation is moderating in many categories, shelter can keep households feeling trapped in a high-cost regime.
Multiple perspectives: why some policymakers stay cautious
From a policy perspective, shelter inflation is a red flag because it can be persistent. If overall inflation is near the mid-2% range but shelter remains firmer, officials worry inflation could re-accelerate—or remain stuck above target.
From a household perspective, the argument sounds like this: “If inflation is under control, why is the biggest bill still rising?” The data offers no easy consolation; it offers explanation. A large component rising at 3.2% year over year will be felt.
From a household perspective, the argument sounds like this: “If inflation is under control, why is the biggest bill still rising?” The data offers no easy consolation; it offers explanation. A large component rising at 3.2% year over year will be felt.
Practical takeaway
If you want to understand whether inflation relief will feel real, track shelter. A cooling CPI that doesn’t translate into slower shelter increases will keep public sentiment sour.
So what should readers watch next? The signals that matter more than slogans
Economic narratives can be weaponized—“inflation solved” versus “everything is broken”—because both sides can cherry-pick categories. Readers deserve a better dashboard than partisan mood music.
Here are the signals supported by the latest official releases:
Here are the signals supported by the latest official releases:
1) Monthly inflation and the “pace” story
A year-over-year number can lag turning points. Monthly data shows momentum. In December 2025, CPI-U was +0.3% and core CPI +0.2%. In October and November 2025, the PCE price index and core PCE were +0.2% each month.
Those are consistent with a cooling trend—steady but still positive price growth.
Those are consistent with a cooling trend—steady but still positive price growth.
2) Real earnings—especially weekly
BLS real earnings show:
- Real hourly earnings flat month-to-month in December 2025
- Real hourly earnings up 1.1% year-over-year
- Real weekly earnings down 0.3% month-to-month due to a shorter workweek
The implication is subtle but crucial: even when inflation cools, purchasing power can stall if hours fall or wage gains slow.
- Real hourly earnings flat month-to-month in December 2025
- Real hourly earnings up 1.1% year-over-year
- Real weekly earnings down 0.3% month-to-month due to a shorter workweek
The implication is subtle but crucial: even when inflation cools, purchasing power can stall if hours fall or wage gains slow.
3) Category-level realities
Watch the categories that dominate lived experience:
- Shelter (+3.2% y/y)
- Food (+0.7% in December)
- Energy (+0.3% in December)
Also watch where relief is happening, even if it’s less visible:
- Used cars and trucks (-1.1% in December)
- Communication (-1.9% in December)
- Shelter (+3.2% y/y)
- Food (+0.7% in December)
- Energy (+0.3% in December)
Also watch where relief is happening, even if it’s less visible:
- Used cars and trucks (-1.1% in December)
- Communication (-1.9% in December)
Practical takeaway
Treat “inflation is down” as an opening line, not the plot. The story lives in shelter, food, and real weekly earnings—plus whether the gains are broadly shared.
Conclusion: The economy cooled; the cost of living didn’t rewind
The latest data supports a clear statement: inflation has moderated. CPI-U rose 2.7% over the year ending December 2025, and core CPI was up 2.6%. The Fed’s preferred lens shows core PCE still running around 2.8% year over year in November 2025, with monthly increases of 0.2% in October and November.
None of that means prices went back to where they were. Disinflation isn’t a time machine. It’s a slower climb after a steep one.
Wages are part of the repair process, and the BLS shows real hourly earnings up 1.1% over the year, but flat in the latest month and accompanied by a 0.3% drop in real weekly earnings. Many households are still paying more for the essentials—especially shelter—than the headline suggests.
The honest way to describe the moment is neither triumph nor doom. Inflation is no longer roaring, but the price level remains high, and the distribution of costs is uneven. The political argument will keep running. Your budget will keep doing the judging.
None of that means prices went back to where they were. Disinflation isn’t a time machine. It’s a slower climb after a steep one.
Wages are part of the repair process, and the BLS shows real hourly earnings up 1.1% over the year, but flat in the latest month and accompanied by a 0.3% drop in real weekly earnings. Many households are still paying more for the essentials—especially shelter—than the headline suggests.
The honest way to describe the moment is neither triumph nor doom. Inflation is no longer roaring, but the price level remains high, and the distribution of costs is uneven. The political argument will keep running. Your budget will keep doing the judging.
What to watch next (household dashboard)
- 1.1) Shelter inflation (because it dominates budgets)
- 2.2) Real weekly earnings, not just hourly pay (hours matter)
- 3.3) Monthly inflation momentum (CPI and PCE monthly changes)
T
About the Author
TheMurrow Editorial is a writer for TheMurrow covering explainers.
Frequently Asked Questions
If inflation is 2.7%, why aren’t prices falling?
Because inflation measures the rate of change, not the overall price level. A 2.7% CPI reading (Dec 2025 vs. Dec 2024) means prices are still rising, just more slowly than during high-inflation periods. Broad price declines require deflation, which is rare and often associated with recessions.
What’s the difference between disinflation and deflation?
Disinflation means inflation is slowing—prices keep rising, but at a slower pace. Deflation means prices fall across the economy (negative inflation). Most recent U.S. data reflects disinflation: CPI-U up 2.7% year-over-year and core CPI up 2.6%.
Why do rent and housing costs dominate the inflation experience?
Because shelter is typically a household’s largest expense and a major CPI component. In December 2025, shelter was up 3.2% year-over-year (and 0.4% in the month). Even if other categories cool, shelter increases can keep budgets strained and shape public perception.
Are wages keeping up with inflation?
It depends on the period and the measure. The BLS reported real average hourly earnings were unchanged from November to December 2025, because nominal wages and CPI both rose 0.3%. Over the year, real hourly earnings rose 1.1%, but real weekly earnings fell 0.3% in the latest month due to a shorter workweek.
Why do some headlines cite CPI while the Fed talks about PCE?
CPI and PCE use different methods and weights, so they can differ slightly. CPI is widely used in media. The Fed often emphasizes PCE; BEA data showed core PCE up 2.8% year-over-year in November 2025, with monthly increases of 0.2% in October and November. Both generally tell a consistent direction story, but not always the same pace.
What categories are still driving pressure—and where is relief showing up?
In December 2025, CPI showed pressure in food (+0.7% in December), shelter (+0.4% in December; +3.2% year-over-year), and energy (+0.3% in December). Some relief pockets appeared in used cars and trucks (-1.1% in December) and communication (-1.9% in December).
