AYESHA RASCOE, HOST:
Now at the economy, the nation's and yours. Businesses are hiring. Unemployment is low. But many Americans say they're grumpy about their finances, and that could be a big factor in this year's election. NPR's chief economics correspondent, Scott Horsley, joins us now. Good morning.
SCOTT HORSLEY, BYLINE: Great to be with you, Ayesha.
RASCOE: So, Scott, we know inflation has a lot to do with people's unhappiness with the economy. When I go out to eat or go to the grocery store, prices are still high. A Red Baron pizza used to be $5. Now it's $7. So what is going on?
HORSLEY: Well, you're right. Inflation has come down a lot since it hit that four-decade high a couple of years ago. It was above 9% back then. It's under 3.5% now. We're going to find out about May's cost of living this coming week. But there hasn't been a lot of progress on inflation in the last few months.
Now, there is some encouraging news at the gas pump. Gas prices dropped by 8 cents a gallon this past week. That's the biggest decrease all year. And we know that gas prices have an outsize impact on people's feelings about the economy, so we'll see if cheaper gasoline helps people get out of that funk they've been in.
RASCOE: Yeah, I mean, it's definitely nice to see gasoline prices come down, especially as people are traveling for the summer. But a lot of other things still seem really expensive.
HORSLEY: You're right. Grocery prices have pretty much leveled off, but they're not going down, for the most part. And the price of restaurant meals is still climbing by about 4% per year. Now, businesses do say they're getting more pushback from customers who have hit their limit on spending. More shoppers are hunting for bargains, and some businesses are responding with more discounts. Applebee's, for example, reintroduced its $1 margarita, and more than a quarter of all Applebee's customers are now taking advantage of some kind of promotion when they order.
So people are getting more price conscious. Companies have to think twice about raising prices because they know they risk losing business when they do so. And by the way, that is normal. That's how the economy usually works. What was abnormal was the situation we've had in recent years when companies raise prices at will, and shoppers just kept buying.
RASCOE: One-dollar margarita sounds like party time to me (laughter). But one thing that's not getting a discount is house prices. They are still going up, and we might need some margaritas if we end up going house hunting.
HORSLEY: Yeah, and that's a big concern, especially for people trying to buy their first house. There aren't a lot of homes on the market, so prices are high, and then there's the double whammy of high interest rates on top of that. A new survey from Fannie Mae this past week showed just 14% of people think this is a good time to buy a home. Mortgage rates did inch down a little bit this past week, but they're still pretty close to 7%.
RASCOE: So what's it going to take to get lower interest rates? I thought I heard they were going to start getting those down a bit.
HORSLEY: The Federal Reserve has signaled it wants to see more progress on inflation before it starts cutting interest rates. Some other central banks in Europe and Canada did start cutting rates this past week, but the feds expected to stand pat when policymakers meet on Wednesday. Borrowing costs are likely to stay high at least through the summer, and that means it's going to remain costly to get a car loan or borrow money for a business or just carry a balance on your credit card. We could start to see some relief from those high interest rates in September, but it's going to depend on what happens with inflation and the job market between now and then.
RASCOE: But the job market still looks pretty good, right?
HORSLEY: It does. The Labor Department reported Friday that employers added 272,000 jobs in May, a lot more than forecasters had expected. Average wages were also up 4.1% over the last year, which is more than enough to keep pace with inflation. That strong job market is a double-edged sword, though. It's good for workers, but those big wage gains could put upward pressure on prices, and that makes it that much harder for the Fed to get prices under control, so it feels confident about cutting interest rates.
RASCOE: NPR's Scott Horsley, thank you so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.
