The Federal Reserve has stated it will raise interest rates as many as four times this year in an attempt to curb inflation. Many experts believe this will be too little too late. The consumer price index rose by 7.5% in January compared to the same month last year. That was the largest increase since February 1982. 

While prices of some items have surged around 60% year over year, the price of food at schools is plunging. (Conversely, the price of this household item is soaring.)

As the year wears on, among the most substantial concerns is that inflation will result in consumers pulling in spending, which has been robust even during the COVID-19 pandemic. Price increases erode consumer spending, and this can sharply slow the economy. Consumer spending is about 70% of the U.S.’s gross domestic product. 

The latest signal of this problem is the February release of the University of Michigan Survey of Consumers. In sum, the researchers reported: “Sentiment continued its downward descent, reaching its worst level in a decade, falling a stunning 8.2% from last month and 19.7% from last February.” Inflation was singled out as the primary trigger for the decline.

Harvard economist and former Treasury Secretary Larry Summers has been warning about the problem for months. He recently said, “It’s clear that inflation is the dominant economic problem as seen by the American people. It’s clear that inflation is significantly contributing to distrust in the institutions and to pessimism about the future.” 

What if the Fed does become aggressive and raises rates several times this year? It will result, among other things, in higher interest rates across a number of areas, including mortgage rates. Historically low rates have helped drive the extraordinary rise in home prices. That, in turn, has increased home equity, which is a major part of the net worth of many people.

The balancing act of rate increases and inflation is clearly delicate.

The prices of some household items – goods and services Americans use everyday – have dodged the effects of inflation almost completely, and in a number of cases prices have fallen. 24/7 Wall St. reviewed the recent Bureau of Labor Statistics consumer price index report to find the household items with price declines in January.

Not surprisingly, the cost of food at schools and businesses has fallen sharply, almost certainly because of a COVID-19 drop in demand. Interestingly, the price of smartphones has also fallen, as the major wireless carriers chop prices to pick up market share. (These are the most popular phones of all time.)

Click here to see the price of the household item that is plunging

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