Hi, I'm Ryan Boyle, Chief US Economist for Northern Trust. Would you believe me if I said inflation is almost back to normal? I'll understand if that raises skepticism. The costs of both major purchases and everyday items still don't feel right. But let me see if I can put prices into proper perspective.

Let's start with a basic definition. Inflation is the rate at which prices change. When someone says that inflation is improving, that does not mean prices are falling. It merely means that prices are not escalating as fast as they did a year or two ago. This is a common point of confusion between economists and normal people.

A healthy economy will feature moderate inflation. Those hoping that prices will decline should be careful what they wish for. Falling prices, or deflation, can be ruinous. Japan suffered three decades of deflation, and its markets have only recently returned to their 1990 levels.

Next, let's consider how inflation is measured. The two primary gauges are the Consumer Price Index, or CPI, and the Price Index on Personal Consumption Expenditures, or PCE. The two series are produced by two different statistical agencies using different methods and different weights on various items. These variances can lead them to show different trends. The distance between them is currently fairly wide.

The PCE is the Federal Reserve's preferred measure and the basis of the 2% inflation target. It is known to be more comprehensive and reflects changes in spending patterns more quickly. The CPI is published on an earlier schedule. And during intervals of high inflation, it runs higher than PCE. For these reasons, CPI tends to get more attention.

Inflation metrics are constructed to cover everything that consumers buy. But observers often focus only on a subset of prices. Food and energy prices are excluded from core measures because they can be unusually volatile. Policymakers prefer to set them aside as to not be whipsawed back and forth. But that creates another degree of separation with ordinary consumers. Prices at the grocery store and the fuel pump are precisely where consumers experience inflation.

The basket over which inflation is measured will always contain some outliers. Over the past few years, the prices of hotels, used cars, eggs, airfare, and even chocolate have experienced outsized increases. These variations raise the temptation to read inflation selectively, but we'd recommend sticking to a big-picture view. By any measure, not long ago, inflation was very high. Today, it is more tolerable, but still running hotter than what we experienced before the pandemic.

Some further gains are likely as the economy cools, and that will be key for the Federal Reserve to lower interest rates. Past cycles of inflation taught us what to expect. Price changes will become steadier, income catches up to costs, and the economy carries on. Today's prices will eventually feel normal, even if that may seem hard to believe.