Inflation rate is slowing. So why isn’t it making a difference for so many Spokane residents?

Jenni Carr, of Otis Orchards, had a discussion this past week with her boss about how the national rate of inflation recently came down to its lowest level in three years.

Carr, 46, said it may have fallen from a peak of 9.1% in 2022, but the drop to 2.5% hasn’t eased her monthly expenses.

“I don’t feel like it’s going down,” said Carr, who was pushing a cart full of goods to her car from a large local retailer. “When I go to the store, the total doesn’t match what I used to buy. I’m definitely frustrated.”

She’s not alone.

Statistics released in September by the U.S. Bureau of Labor Statistics showed that prices climbed 2.5% in August compared to August 2023.

But that slowing rise in prices still means that things cost more than last year and certainly a lot more than several years ago.

That reduction in the inflation rate finally prompted the Federal Reserve, which targets an inflation rate of 2% as its sweet spot, to drop its rate by half a percentage point on Sept. 18. It’s a move that triggers cascading effects which will eventually translate to lower mortgage rates for people trying to buy homes.

It will make it less costly for consumers to borrow money to buy cars or pay for college. It also lowers the amount of interest that banks pay to customers’ saving accounts.

Grant Forsyth, the chief economist for Avista Corp., said both the lower inflation rate and Fed moves will help, but local consumers continue to get battered by higher costs as a result of an economy grappling with shocks to the system that occurred during and after the COVID-19 pandemic.

“Here’s the problem,” Forsyth said. “You have to make a distinction between the rate of inflation, the prices going up, and the price level.”

“People are still paying higher prices even though the rate of (inflation) growth has slowed,” he said.

Leslie Blockman, 42, of Spokane, was walking out of the same store as Carr last week with her son, Darrin Blockman, 24.

With a shopping cart full of bulk items, Blockman said the higher prices have forced tough choices.

“It makes you think more,” Leslie Blockman said. “I’m more aware of what I’m spending.”

The younger Blockman said he’s saving to purchase a home.

“Fortunately, I’m really good at saving money,” he said. “Hopefully next year or the year after that.”

Patrick Jones, executive director of Eastern Washington University’s Institute for Public Policy and Economic Analysis, said figures from the latest Consumer Price Index report show some of the problems the younger Blockman will be facing in his home search.

“You have shelter prices, that’s both rent and mortgage, that are up 5.2%, which is twice as high as the overall average,” Jones said. “The price increases in Eastern Washington in the last five years in single-family residences have just been extraordinary.”

Housing costs

Tom Hormel, Realtor and designated broker at RE/MAX of Spokane, said the most recent figures from the Spokane Metro Area show that homes continue to sell at a muted pace. And it’s too early to see much movement following the Fed’s recent rate cut.

He noted that the Fed has three more meetings before the end of the year and further rate cuts could come.

Hormel, who is the immediate past president of the Spokane Association of Realtors, said LoanDepot’s chief economist predicted mortgage rates in the mid-5% could come by the end of the year.

“That will spur some movement in the market. That will create a flurry, but we haven’t seen that yet,” Hormel said.

Some 544 homes sold in Spokane County in August, which was down just over 6% from the number of homes sold during the same month last year. The median sales price of a home in the region was $425,000, which is up 1.2% over 2023.

Sellers had 1,304 homes on the market, which constitutes a 2.4-month supply. Hormel noted that a healthy market is about a six- to eight-month supply.

“Sales are still down because the interest rates are still up,” Hormel said. “With the median price of a home, that’s still more than a $2,000 mortgage. That’s really difficult, especially for a single paycheck coming into a household.

“Then you add into that the costs of all the goods, and insurance going up and gas prices going up, there’s still a massive amount of pressure on households.”

Just like everybody else, Hormel said he’s yet to see any relief from higher costs across the spectrum.

“I can tell you personally that I saw a 30% increase in my homeowner’s insurance this year,” Hormel said. “I don’t live on the water or in the woods where there is a fire danger. I live in a neighborhood in the Valley.”

That hike alone raised his monthly mortgage rate, which includes the cost of the home loan, taxes and insurance, by $50 a month.

“The consumer is not feeling inflation going down,” he said. “I think it’s a number (2.5% Consumer Price Index) being made up at the federal level to make people on the street feel good.”

Sticking prices

Forsyth noted the Consumer Price Index told a diverging tale of costs that consumers pay every month.

While prices for goods, like groceries, have stabilized, the numbers show that the cost of services, which includes car insurance, doctor visits, utility costs and the price of fixing homes and automobiles, continues to rise.

“What we are seeing with inflation is really two different stories,” Forsyth said. “The real problem is not with the goods side. It’s the services side of the economy.”

He focused on the price increases for home insurance, like Hormel’s.

“Those problems aren’t going to go away, because the problems in insurance markets are tied to increasing risk because of climate,” he said. “You can have a situation where the insurance market in big parts of the country simply fails. It’s bad when you can’t afford it, but it’s worse when you can’t find it at all.”

Following the catastrophic Gray and Oregon Road fires last year, many victims, and even neighbors who did not suffer any damage, had insurance companies either raising rates or dropping them as clients.

Many of those victims who had insurance found out, after the fact, that their policies were not enough to make them whole.

Forsyth said he fears more of that is to come for the region.

He noted the Washington state Office of the Insurance Commissioner can regulate insurance prices, but it can’t compel companies to provide policies if they choose not to.

Similar problems could come with car insurance, he said.

“I’ve never seen a good analysis why car insurance is going up,” Forsyth said. “But as it becomes more expensive, people will either choose to not use a car or they will be uninsured or underinsured. That in itself causes a spiral of insurance costs. That falls to people who do have insurance.”

Wages

Both Forsyth and Jones, from EWU, agreed that employee pay in the region has climbed. However, the inflation rate has reduced the purchasing power of those same workers.

“The problem is … employers can’t keep that wage growth up. Wage growth begins to slow at the same time you are paying a higher price level for everything,” Forsyth said.

“Economists have long understood,” he continued, “that prices tend to be very flexible in the upward direction and sticky in the downward direction.”

Jones said the inflation-adjusted average salaries in the Spokane Metro Area have continued to slide.

For instance, Jones said you calculate the inflation-adjusted average salary by taking the average salary and dividing it by a multiple of the Consumer Price Index. For 2023, the average salary in the Spokane area was $61,700, but when divided by the CPI, the adjusted salary was $46,500.

That means the average worker in Spokane had less purchasing power in 2023, which are the most recent figures available, than they did in 2021 when the average adjusted earning was $48,500.

Forsyth said this causes difficult decisions for area consumers.

“Most households have binding budget constraints,” he said. “They have a certain amount of income. They can extend it a little bit with debt.”

That’s exactly what thousands of consumers across the country have done to make ends meet.

Record debt

According to the Federal Reserve Bank of New York, American credit card balances grew by $27 billion during the second quarter of this year and are now up to $1.14 trillion in outstanding debt, which is a new record.

For comparison, the credit card debt was $670 billion for the same quarter in 2014 and $870 billion for the same quarter in 2019.

“I think people are starting to exhaust their ability to carry debt,” Forsyth said. “A lot of households have done a pretty good job of dealing with inflation, but they need to see that get back to that 2% target. In terms of services, it’s a real problem.”

Greg Deckard, CEO and chairman of State Bank Northwest, said the consumer debt load also applies to loans for RVs, new cars and boats.

“Consumers, during COVID, were paying with their credit cards and paying them off,” Deckard said. “The first trend we see is that consumers are not paying off their credit card balances in full each month.”

In addition to leading the Spokane-based bank, Deckard has served on the board of directors for a subsidiary of the Independent Community Bankers of America called ICBA Bancard and TCM Bank, which is the 24th largest issuer of credit cards in the country and is headquartered in Tampa, Florida.

“There are some disturbing trends in the consumer debt load and performance,” he said.

Higher interest rates have made it more difficult for consumers who have fallen behind.

“The burden on the card holder is not only higher inflation and cost of living, but carrying higher debt,” Deckard said. “Disposable income is not increasing. That’s putting a strain on families.”

Adding debt payments to a budget that is already strained will make it even harder for some workers hoping to buy a home or save for retirement.

“Consumers had the federal spending, and when the economy started turning, they didn’t change their behaviors. They kept spending,” Deckard said. “That’s how we got here.”