Inflation continues to rise in California. Here’s what economists say will happen in 2024

The good news for California consumers in the months and years ahead: Prices should stop going up so much.

But while food and gasoline price increases slow, housing costs may climb more than the average rate of inflation, according to economic experts.

The UCLA Anderson forecast has overall consumer price hikes in California averaging 4.1% this year, cooling to 3.2% next year and 2.9% in 2025. That’s virtually the same as its forecast for national averages.

Other analysts had similar views. “Going forward, California moves with the national inflation rate,” said Mark Schniepp, director of the Santa Barbara-based California Economic Forecast.

But, he warned, “if home prices and rents continue to rise here, then yes, we would expect California inflation to remain above national inflation.”

The California Association of Realtors predicts the median home price in the state will go up 6.2% next year to $860,300. This year’s average is $810,000, down 1.5% from 2022.

The 2024 projection is both good and bad news. While prices are rising, a big reason is that mortgage interest rates are expected to be somewhat lower.

While the rate on a 30-year fixed rate loan is currently 6.7%, it’s expected to drop to 6% next year. The rates climbed as the Federal Reserve implemented a series of increases in its key rates in 2022 and 2023, but those increases are expected to slow or stop in 2024.

The more promising news on inflation involves energy and food.

While food prices overall have been growing at a 5.8% pace this year, the U.S. Department of Agriculture Economic Research Service sees 2.2% growth in 2024.

Much of the increase would come from food eaten in restaurants and other places away from home. Food bought in grocery stories should cost 1.6% more next year, while restaurant food increases 4.3%.

The slower increases reflect changes from what’s been a volatile 2023.

Food prices have been affected this year by extreme weather in some agricultural regions, supply constraints because of the war in Ukraine, and egg prices that soared because of what USDA said was “avian flu (that) resulted in significant reductions in egg-laying flocks.”

Energy prices are also viewed as rising more slowly than in 2023.

A week ago, the average price for a gallon of regular gasoline in California was $5.88. Friday, it was $5.67, and a year ago, it was $6.20.

In the Sacramento area Friday, a gallon of regular gas averaged $5.53. A week ago, it was $5.74 and a year ago, $6.10.

Other Friday averages, all down from a week and a year ago: Fresno, $5.39; Modesto, $5.42; Merced, $5.61 and San Luis Obispo, $5.91.

Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks price trends, said California gasoline prices are due to decline another 80 cents per gallon quickly.

What could go wrong?

There are risks to all the forecasts, and some of the good news is the result of some less than good news.

Sung Won Sohn, president of SS Economics in Los Angeles, found that the state’s inflation rate “should not be worse than the U.S. average.”

In addition to stabilizing prices, he saw another reason: The state continues to have one of the nation’s highest unemployment rates.

While no recession is expected, there are signs of trouble that could cool demand, which in turn cools price increases.

“Real estate, which is very sensitive to the interest rate, is suffering. Technology used to be the backbone of the state’s economic growth, but layoffs have been increasing,” Sohn said. “As the traffic at the ports of Los Angeles and Long Beach indicates, international trade has slowed. Because of the high cost of housing and burdensome taxes, people and businesses continue to leave the state.”

The UCLA forecast saw California’s unemployment rate ranging from 4.6% to 4.7% over the next two years. That’s higher than its national forecast of 3.8% for the same period. California unemployment has been above the national average for some time, partly due to a lag in tourism and difficulty filling lower-wage jobs.

There’s also the risk of higher prices because of wars in Ukraine and the Middle East, which Sohn said “casts a big shadow over the inflation picture.”

But not at the moment, and not something that economists can work into their forecasts.

For now, said Sohn, “the inflation picture has improved.”