This is what the latest numbers are starting to show.
Inflation is supposedly cooling.
July CPI was up 3.4% from a year earlier, down slightly from 3.5% in June.
But look at the bills people actually have to pay.
Energy was still 14.7% higher than a year ago.
Gasoline was up 24.6%.
Electricity was up 4.2%.
Natural gas was up 4.3%.
Food was up 3%.
Shelter was up 3.2%.
And real hourly earnings actually fell 0.2% over the past year.
So yes, the inflation rate is coming down.
But people’s purchasing power isn’t suddenly recovering.
That’s the part I think we’re missing.
You can stop buying a $7 coffee.
You can’t stop paying the electric bill.
You can’t stop buying food.
You can’t stop paying rent or a mortgage.
You can’t stop insuring your car.
You can’t stop paying property taxes if you own a house.
You can’t stop driving if you need the car to get to work.
And homeownership isn’t getting cheap either.
The median monthly cost of owning a home is now about $2,035, including the mortgage, property taxes, insurance, utilities and HOA costs. That’s up 3.8% from a year earlier.
This is why the official inflation number can look relatively harmless while households feel completely squeezed.
The problem isn’t just inflation anymore.
It’s how many unavoidable expenses are rising at the same time.
And once the discretionary stuff gets cut, there isn’t much left.
Cancel subscriptions.
Eat out less.
Buy cheaper clothes.
Stop traveling.
Fine.
Eventually you’re staring at the grocery bill, the insurance bill, the electric bill, the property tax bill and the housing payment.
Those don’t disappear.
That’s when inflation turns into an affordability problem.
And there’s another nasty part.
When prices rise 20%, 30% or 40% over several years, slowing inflation doesn’t reverse it.
It just means the higher price level stops rising quite as fast.
The bill stays high.
The paycheck has to catch up.
And right now, real hourly earnings aren’t even keeping up with the overall price level.
So I think the bigger story isn’t that Americans are experiencing one giant inflation shock.
It’s that the list of things they can cut is getting shorter while the list of things getting more expensive keeps getting longer.
At some point there is nothing left to cut.
Except spending on everything that isn’t essential.
And that’s when the inflation problem starts hitting the rest of the economy.
People don’t need to feel rich to stop spending. They just need to run out of money after paying the bills.
Latest CPI data from the Bureau of Labor Statistics