Inflation hurts most for the things we can’t skimp on

After all, price increases for lots of items, like cable and shampoo, are indeed cooling. Prices for vehicles, gasoline, TVs and plane tickets have even dropped over the past year. And the overall pace of year-over-year inflation as measured by the Labor Department’s consumer-price index was down to 3% in its most recent reading—much, much lower than the recent high of 9.1% that it clocked two years ago.

But prices for many of the things that are hard to do without are still posting eye-watering price increases. Rent and electricity bills are up 10% or more over the past two years, and car-insurance costs are up nearly 40%, according to the Labor Department’s index. Shoppers might be able to trade down from prime steak to cheaper cuts of meat at the supermarket, but they can’t really do the same thing with the water bill.

“We’re beginning to run out of rope in how much we can substitute out," said David Bieri, an economist and professor at Virginia Tech.

Rising prices have been front and center in the U.S. over the past three years, affecting how Americans feel about the economy and how they are planning to vote. A softening jobs market will only amplify their concerns.

Investors and policymakers will get another look at price pressures on Wednesday, when the Labor Department releases its latest print on the CPI.

‘I haven’t noticed any relief’

Jake Tromburg and his family moved into a smaller home last year in Chesapeake, Va., and were surprised to get an electricity bill one month last summer for more than $500.

Their new house has a pool, and they installed an air-conditioning unit in their daughter’s room above the garage. Both helped push the bill higher. So Jake and his wife, Marie, bought an energy-efficient refrigerator secondhand, downsized the voltage of the pool’s pump and told the children to turn off the lights during the day. Their recent monthly bill was $250.

To save money elsewhere, the Tromburgs have downgraded their home-insurance plan. But they still pay more than $1,700 a year, an increase of over $300. They likewise trimmed their spending on their kids’ youth sports leagues. Instead of soccer and basketball, it is just soccer this season.

“I haven’t noticed any relief in prices lowering," said Tromburg, a 42-year-old pastor. “Gas prices are a little bit lower. But that hasn’t made me say, ‘Oh, man, sweet, let’s spend more money.’"

The Federal Reserve jacked up interest rates starting two years ago as a way to rein in inflation, which roared higher in part because of buoyant consumer demand. Now that overall price pressures are easing and the labor market is showing signs of strain, Fed officials are clearing the way to start cutting rates.

Major companies say they are seeing consumers trim their spending on nonessential items. McDonald’s executives, for example, said recently that they will emphasize a $5 meal bundle and other deals, noting that inflation-weary customers were buying fewer items per visit or eating at home.

Other types of spending are harder to avoid, and many of those items take up a large slice of households’ budgets. Overall consumer prices have increased 6% since June 2022, when inflation hit its recent high. Services—which include such things as dental cleanings, haircuts and eldercare—have risen nearly twice as fast. That is partly because dentists, salons and nursing homes have had to increase wages for their own workers, who are also dealing with rising prices.

Housing costs are stretching people thin

Housing is by far the biggest monthly expense for U.S. households. In the CPI, shelter costs—a measure of rent and the equivalent cost to homeowners, as well as lodging away from home and household insurance—have risen more than 13% in two years.

When a family’s $3,000 rent or mortgage payment jumps 13%, that dings the bank account by about $400 a month.

Some prices are rising owing to factors other than traditional supply and demand. Home insurance costs for owners in some parts of the U.S. have ballooned partly because of storms and fires. Utility bills have climbed as companies try to shore up an aging power grid.

The pace of some price increases is likely to slow down, according to economists. Take cars as an example. Car prices shot up early in the pandemic. It took time for car insurance costs to catch up—but over the past two years they have risen quickly, too.

That is little consolation for such consumers as Brendan Madigan, an accountant in Durham, N.C., and his wife, Alexis Madigan. They would like to buy a minivan, and a house that is bigger than their current three-bedroom. But they have held off because of the rising costs of home insurance, transportation and other expenses. They have also cut restaurants and movie nights out of their budget.

“We were looking for a bigger house and potentially growing our family further in the future. But with the cost so high, we’re really pinching pennies," Brendan Madigan said.

When daycare is a second mortgage

Families with young children are also paying higher prices for child care. Costs have risen 6.4% over the past two years, in line with the overall CPI. Because daycare bills can be as big as the rent payment or the mortgage, even a relatively small increase can feel like a lot.

The median price to put an infant in center-based care in 2022 was more than $1,400 a month in major metro areas, according to the Labor Department. A 6.4% increase puts that bill closer to $1,500.

The Madigans’ daycare costs have risen much faster. The daycare bill for their older daughter shot up last month to $1,650 from $1,200 a month. Daycare for their younger daughter, who starts in two weeks, will be $1,800 a month. They searched for cheaper options but quickly realized that the price was the standard.

“I would have hoped that where my career path is at, and with my wife working as well, that we would have some financial flexibility," said Madigan, 32.

Households across the country are facing similar struggles. According to the Labor Department, essential services such as water, sewer and trash collection have jumped nearly 11% in price over the past two years, and electricity has climbed 10%.

Costly cars

The cost of transportation services, which includes vehicle insurance and repair, has jumped more than 18% in the past two years, according to the CPI. That would slap an extra $55 a month on a $300 budget. An increasing number of cash-strapped Americans are choosing to drive without car insurance.

Jasmine Moore, an operations manager at a social-justice nonprofit, missed a payment on her auto insurance about six months ago. Now her monthly bill has doubled, from $195 to $395. Her bank account is often near overdraft. She also has $80,000 in student debt from college and a master’s degree.

As a single mom, Moore feels guilty when she has to skimp on things that make her 10-year-old son happy. Part of her feels as though she should focus on him before any other bills. The two have had to cut back on visits to family in Valdosta, Ga., roughly three hours south of their home in the Atlanta suburbs.

Moore also canceled her son’s math tutoring sessions and instead tutors him herself. Instead of Publix, she opts for discount grocery stores and food pantries.

“I have middle-class pay," said Moore, 32. “But I feel like I’m lower income."

Write to Harriet Torry at harriet.torry@wsj.com and Terell Wright at Terell.Wright@wsj.com