Southern California inflation at 2-year low. Is price pain over?

June brought promising inflation news to local checkbooks, but it may be a bit early to proclaim the price-hike demon is dead.

My trusty spreadsheet’s look at local Consumer Price Indexes, released Wednesday, July 12, tells us the overall cost of living in Los Angeles and Orange counties rose at a 2.5% annual pace in the last 12 months.

That’s the slowest pace of price pain since March 2021 and a welcome relief from the 8.6% inflation of June 2022. And June’s inflation rate equals the average hikes seen in pre-pandemic 2015-19.

Next, look to the Inland Empire, with a bimonthly inflation rate. Inland prices rose 3.9% in the year ended in May, a sharp improvement over 9.4% inflation in the previous 12 months.

And the nation’s 3% rate was the lowest in 27 months and one-third of June 2022’s 9.1% rate.

Did win “win”?

So with inflation essentially at two-year lows, shall we declare pricing problems “whipped” and move on?

Isn’t it time to tell the Federal Reserve to knock off the tight-money policies, cut interest rates and dispel the economic cloud?

Well, not so fast. There are several reasons not to issue “all clear!” signals yet. Ponder how the last year’s improvement played out.

The CPI says LA-OC prices are up 3% in just the last six months. (Double that pace to imagine an ugly annualized rate!) And that’s a swift switch from falling 0.5% in the previous six months.

Plus, look at the Inland Empire where as of May there was a 2.2% CPI gain in the most recent six months vs. rising 1.7% in the previous half year.

Nationally, it’s up 2.8% since December vs. a 0.2% increase the previous half year.

So celebrations may be premature. The Fed’s harsh rate hikes starting in spring 2022 did serve as a swift inflationary throttle,– but it’s by no means produced a full halt to pricing pain.

And none of the inflationary debate about how much more “medicine” the economy requires calls for pushing price down below what they were before the worst bout of inflation in four decades hammered consumer finances.

It’s in the details

When you peek inside the CPI to eyeball a few key spending categories, it’s not a universal cooling of inflation.

Ponder slices of household spending that have June stats for both coastal and inland communities …

Groceries: The cost of filling the fridge and pantry has become somewhat less stressful during the past year. And “somewhat” translating to smaller increases.

LA-OC “food at home” prices rose 2.7% in the past year vs. up 12.2% previous 12 months. The improvement has been steady: up 1.3% last six months vs. up 1.4% previous six months.

Inland Empire costs are up 6.1% in the past year vs. up 10.5% previous 12 months. The noteworthy drop in inflation has continued – and up 0.9% last six months vs. up 5.2% in the previous six months.

Shelter: It’s by no means cheap to put a roof over one’s head in Southern California. And the inflation picture isn’t improving much.

LA-OC housing costs are up 5.6% in the past year vs. up 4.4% in the previous 12 months. Perhaps there’s hope seen in the 2.5% increase of the last six months vs. 3% during the previous six months.

The Inland Empire, with its fast-growth economy, is more challenged. Costs are up 8.3% in the past year vs. up 7.2% previous 12 months – with a 4.1% rise in the last six months vs. up 4% previous six months.

Gasoline: Drivers see the sharp improvement in those ubiquitous gas station signs of the past year, but a seasonal price rebound is ongoing.

LA-OC prices are off 23% in the past year vs. up 50% in the previous 12 months – but fuel costs are up 7.7% last six months vs. off 28% previous six months.

It’s similar inland, where prices were off 23% in the past year vs. up 50% previous 12 months – but up 8.9% last six months vs. off 29% previous six months.

Household energy: Heating and cooling the home has been another rollercoaster for household budgets.

LA-OC prices are off 1.6% in the past year vs. up 22% previous 12 months – and it’s steady price progress: off 0.8% last six months following off 0.7% previous six months.

Same in the IE: Prices up 2.3% in the past year vs. up 24% previous 12 months – and off 1.5% last six months vs. up 3.9% previous six months.

Bottom line

One reason inflation has been a persistent economic headache is that bosses have been forced to increase wages to keep their businesses staffed amid a worker shortage.

The Employment Cost Index for seven-county Southern California says salaries were rising at a 4.9% annual pace in 2023’s first quarter. Yes, that’s the lowest in two years, but it’s also well above the 3.4% annual raises handed out in pre-pandemic 2015-19.

Not only does the extra cash created by heftier raises serve as an inflationary nudge by boosting consumer demand. It also raises business costs – especially for labor-intensive services – that are often passed along at the cash register.

Ponder local inflation rates within the “services minus rent” category to see the labor-cost push.

The CPI says LA-OC costs in this category were up 3.5% in the year ended in June, the lowest in 27 months but still above the two-county 2.5% overall inflation rate. For the Inland Empire, these service costs were up 4% in the year ended in May. That’s the lowest in 28 months and a sliver above this two-county region’s 3.9% overall inflation rate.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com