Is inflation finally under control in California? What economists say about rising prices

Gasoline prices in California are slowly falling. Housing is becoming slightly more affordable. Food prices appear to be stabilizing.

In other words, the latest news about prices is finally encouraging.

“There are some positive signs regarding inflation,” said Song Won Sohn, president of Los Angeles-based SS Economics, a consulting firm.

Gov. Gavin Newsom’s budget’s economic outlook saw the overall rate of inflation slowing to between 2% and “just below 3%” in both the U.S. and the state by early next year. It projects a state annual rate of 2.7% in 2025, 2026 and 2027.

The latest data doesn’t say that yet–prices were up 3.4% nationally on an annual basis in April. In California they’ve gone up early this year at about the same pace.

Experts see signs that the worst is over. Prices were up 9.1% in the 12 months ending in June 2022, their most rapid increase in 41 years, helping prompt higher interest rates.

The rate of inflation has cooled since then, and interest rates have stabilized. The Federal Reserve has not increased its target interest rate since July.

The rate on a 30-year fixed rate mortgage inched down last week, according to Freddie Mac, which tracks rates.

Seventeen percent of the state’s homebuyers could afford to purchase a median-priced, existing single-family home in California in the first quarter of this year, according to the California Association of Realtors. That was up from 15% in the last three months of last year.

Mortgage rates are still historically high–the 7.02% national average last week was close to the 6.98% average of a year earlier. Affordability is still tough.

The association estimated that a homeowner would need at least an annual income of $208,400 to buy a home priced at the statewide median of $814,280.

Lower gasoline prices?

The bigger drivers of inflation trends have been some energy prices as well as food prices. Meanwhile, gasoline prices have stabilized, as supply has largely outstripped demand in recent weeks.

More declines appear to be on the way.

“Definitely, prices should ease-,” said Patrick DeHaan, head of petroleum analysis at GasBuddy, which tracks prices. “The trend should continue, barring refinery outages or hurricanes, etc.”

A gallon of regular gasoline in California averaged $5.20 Monday, according to AAA, the highest price in the country. The state average was 24 cents a gallon less than a month ago.

Food prices also have shown stability. Food purchased for use at home was up 1.1% in the year ending in April. Fruit and vegetable prices were up 1.7%, and prices for meats, poultry, fish and eggs were up 1%. Cereals and bakery products up 0.6%.

Dairy and related products were down 1.3% over the year.

The trend is likely to continue. “Food prices are expected to continue to decelerate in 2024 compared to recent years,” said the U.S. Department of Agriculture’s April economic outlook..

There are risks to all these forecasts. The governor’s economic outlook has a long lists of potential problems, including a reluctance by the Fed to lower interest rates. It also mentions geopolitical tensions and unforeseen catastrophic events such as wildfires or floods.

After all, the US Department of Agriculture has said, “forecasting methods are based entirely on statistical models that are fitted to recent trends in the data.”