Financial expert explains why prices aren't falling despite inflation and why that's actually a good thing – YourTango

Inflation has dominated most of our lives for nearly three years – and with prices still high, it doesn’t feel like there’s an end in sight, no matter what economists and other experts say.

It turns out that there is a very simple reason for this disruption. And as one financial expert explained on TikTok, we might actually be better off this way.

The financial expert explained why prices are not falling despite falling inflation.

The good news is that inflation is heading in the right direction and has been for several months. According to the latest data, the inflation rate has fallen to 3.1%, a huge decline from its peak of 9.1% in June 2022 and just 1.1% above the Federal Reserve’s target of 2%. We’re getting there.

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But if you’re like most Americans, you certainly don’t feel it. Food is still absurdly expensive, as are most of the goods we all use every day. Car prices are still exorbitant. As for housing – well, we don’t even have to get involved in that. So what is there?

It turns out that most of us misunderstand what falling inflation actually means and how it relates to the prices of things. And as financial expert and real estate investor Dean, one half of the popular TikTok duo @alexisanddean, explained in a recent video, we’re actually much better off now than if prices fell.

The reason prices are not falling is because we are experiencing disinflation, not deflation.

“Disinflation… is what we’re technically going through right now,” Dean explained. Certain high-priced items have actually come down in price – Dean cited airfares, appliances and televisions as some of the expensive items that have actually come down a bit, along with gasoline because oil prices are also down for now.

But everything else barely moves. Because what is actually happening now – disinflation – “means that the rate of price increases is falling again,” not the prices themselves.

“Disinflation actually means reducing the price increase level from 9% back then.” [at its peak in June 2022]Dean said. “So [Federal Reserve] The bank has an inflation target of 2%… that means prices will rise by 2% every year.”

To illustrate this, he used an Egg McMuffin as an example. “Things are still expensive. That damn McMuffin egg is still $5. In a year it will still be $5.25 and in a few years it will be $6,” he said. But as inflation skyrocketed, “it jumped from $3 to $5 in one year. At least it won’t rise so quickly now.”

For prices to return to their previous levels, inflation would have to come to a complete halt or reverse. And that pretty much only happens when we find ourselves in the darkest economic times.

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If prices actually fell, there would be deflation, which normally only occurs in an economic catastrophe.

Dean went on to explain that “deflation is a fall in prices” rather than a fall in inflation rates like we are seeing now – and that is a very, very bad sign.

“In a healthy economy, there is no deflation,” Dean said. “If you’re experiencing deflation, that means you’re in a terrible economy. Technically you are in a deep recession. Then the prices go down.”

To put it bluntly, “People think, ‘Oh, you want prices to go down? I want deflation.’ Yes, you are most likely seeing deflation [also] I don’t have a job anymore.” And jobs, it turns out, are the real answer to our economic woes right now — specifically, paying people more.

Dean says the real solution to our problems is wage growth, not falling prices.

“The problem we had is [a lack of] “Wage growth,” Dean said. “Wages and salaries are not growing as fast as inflation. That’s why everything got out of hand.”

Wage stagnation – wages not keeping pace with inflation – has been a problem in America for decades, starting in the early 1970s, and has been exacerbated by our post-pandemic economic challenges.

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This has also improved – wage growth is now finally keeping pace with inflation after starting to rise in 2019. Crucially, however, these wage increases have been achieved primarily by the top 10% of earners – a tiny portion of the population that certainly does not take into account the people who need wage increases most.

“Everything becomes much more unaffordable because you’re not getting paid enough to keep up with the rising prices,” Dean explained. The hope is that the relationship between wages, inflation and prices will essentially reverse as inflation falls back to the Federal Reserve’s target of 2%.

“When it comes back down, ideally wage growth will be higher so everything stabilizes,” Dean explained. As seems to be the case so often these days, it turns out that the real solution to our ongoing economic woes is simply to pay people fairly. Imagine.

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John Sundholm is a news and entertainment writer covering topics such as pop culture, social justice and human interest.