STEVE INSKEEP, HOST:

The way you feel about the news on inflation depends on who you are.

LEILA FADEL, HOST:

The latest U.S. numbers show the inflation rate is coming down. This makes it seem more likely that the Fed can bring interest rates down. And stock markets were up again yesterday.

INSKEEP: Just last week, the markets were diving. But that's a distant memory.

FADEL: But high prices are a current reality for many consumers.

INSKEEP: So NPR's Scott Horsley joins us now. Scott, good morning.

SCOTT HORSLEY, BYLINE: Good morning, Steve.

INSKEEP: OK, let's start with the top-line number. What's happening?

HORSLEY: Well, inflation continues to moderate. Consumer prices in July were up just 2.9% from a year ago. That's the smallest annual increase in more than three years. Inflation has come down by more than two-thirds from its peak back when Russia invaded Ukraine. Gasoline prices are actually down in the last year, so are airfares and used cars. And falling inflation is very much what economists have been waiting to see. But White House economist Jared Bernstein concedes we're not yet back to where a lot of average people want us to be.

(SOUNDBITE OF ARCHIVED RECORDING)

JARED BERNSTEIN: The momentum is certainly in the right direction. Inflation is reliably coming down. And so this is a consistent trend that's moving in the right direction. No victory laps. We still have to be mindful that too many families are facing too many high costs.

HORSLEY: Bernstein actually gave a speech last month where he talked about the difference between inflation rates and inflation vibes. He knows that a lot of people are still unhappy about high prices, even though those prices are no longer climbing nearly as fast as they had been.

INSKEEP: Yeah, I want to be really frank about this, Scott. When we say inflation vibes, it can imply that people just feel bad about inflation. But for many people, the reality is that prices are still high, right?

HORSLEY: Right. And if you look at the data, housing costs are still going up. People who own a home with a fixed-rate mortgage might be partially insulated from that. But renters like Teresa Wolf (ph), who lives in St. Petersburg, Fla., have definitely felt the big increase.

TERESA WOLF: First of all, I live with a roommate because I have to. Rents have just skyrocketed. Everyone I know is doing the same thing. And even if you're a homeowner, your insurance has gone up so much. So everybody's now sharing.

HORSLEY: We also continue to hear complaints about grocery prices. Even though supermarket prices have been pretty stable for the last year - they're up just over 1% in that time period - they're up more than 25% since the prepandemic era. And Wolf and others are feeling the sting of those cumulative price hikes.

WOLF: I don't buy potato chips anymore. That's moved into the luxury category because they kept raising prices, raising prices, raising prices. And, I mean, I had a heart attack at Publix when it was a bag of tortilla chips - I think it was 7.99.

HORSLEY: Frito-Lay sales actually fell in the most recent quarter as some customers said, you know, enough is enough. Now, I should point out - while grocery prices are up 25% since before the pandemic, average wages are up 23% during that period. So wages haven't quite kept pace, but they are catching up.

INSKEEP: OK, that's a useful bit of news. Now, we'll just remind people that the Federal Reserve takes the lead on fighting inflation. They've kept interest rates high. But everybody's waiting for them to begin lowering them since interest rates could be punishing in their own way. How do they know when they've done enough?

HORSLEY: Well, the Fed is watching the data, and not just the inflation rate but also the unemployment rate, which has been creeping up a little bit. For a long time, the job market was so strong. The Fed could really focus on getting inflation under control. Now it has to be careful that those high interest rates don't needlessly put more people out of work. Markets think that inflation has come down enough. So the Fed can start cutting interest rates when policymakers meet next month. And if the job market's looking a little shaky, then those rate cuts might come faster.

INSKEEP: NPR's Scott Horsley, thanks very 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.