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Monday, January 30, 2023

Inflation slows to 7.1%, another encouraging sign for the US economy

WASHINGTON DC – US inflation slowed again last month, in the latest sign that price increases are gradually easing despite continued pressure on US households.

The government said on Tuesday that consumer prices rose 7.1% in November from a year earlier. This was down from recent peaks of 7.7% in October and 9.1% in June. This was the fifth consecutive recession.

On a month-over-month basis, the consumer price index rose just 0.1% in November, down from 0.4% in October.

Even as inflation eased further last month, the Federal Reserve plans to keep raising interest rates. On Wednesday, the Fed will raise its benchmark rate for the seventh time this year, a move that will further raise borrowing costs for consumers and businesses. Economists have warned that the Fed could be headed for a recession next year if it continues to tighten credit to fight inflation.

Tuesday’s government report showed inflation returned in November on less expensive petrol, electricity and used cars, among other items.

Several trends have begun to ease price pressures, although they may not be enough to drive headline inflation back to the levels Americans are used to anytime soon.

The national average for a gallon of regular gasoline has fallen from $5 a gallon in June to $3.26 as of Monday. Several supply chains have also been streamlined, helping bring down the cost of imported goods and spare parts. The prices of lumber, copper, wheat, and other staples steadily declined, reducing the cost of construction and food.

For some economists and Fed officials, these numbers are a sign of improvement, even though inflation remains well above the central bank’s 2% annual target and may not be reached until 2024.

Fed Chairman Jerome Powell said he is following price trends in three different categories to better understand the likely path of inflation: goods excluding volatile costs of food and energy; housing, which includes rent and the cost of home ownership; and services that do not include housing, such as auto insurance, pet services, and education.

In a speech in Washington two weeks ago, Powell said there had been some progress in reducing inflation in goods and housing, but not much in services. Physical goods such as used cars, furniture, clothing and appliances have become even cheaper since summer.

Used car prices, which soared 45% in June 2021 from a year ago, have fallen through most of this year.

Housing costs, which account for about a third of the consumer price index, have continued to rise. But real-time measures of apartment rentals and home prices are starting to decline after seeing prices skyrocket at the height of the pandemic. Powell said those drops will likely be reflected in government data next year and should help bring down headline inflation.

Still, the cost of services is likely to remain very high, Powell suggested. In part, this is because the sharp increase in wages is becoming a significant contributor to inflation. Service businesses, such as hotels and restaurants, are particularly labor intensive. And with average wages growing at a faster rate of 5% to 6% per year, pricing pressures continue to mount in that sector of the economy.

Service companies pass some of their higher labor costs on to their customers by charging them more, thus maintaining inflation. Higher wages also lead to higher consumer spending, allowing companies to raise prices.

“We want wages to grow strongly, but they have to grow to a level that is consistent with 2% inflation over time,” Powell said.

The Fed is expected on Wednesday to raise its key short-term rate by half a point after four consecutive three-quarter point increases. This will leave its benchmark rate in the range of 3.75% to 4%, its highest level in 15 years.

Economists expect the Fed to scale back its rate hikes next year with quarter-point hikes in February and March if inflation remains relatively low.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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