Price pressures continue to decline, according to the favored inflation indicator of the Federal Reserve
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Price pressures continue to decline, according to the favored inflation indicator of the Federal Reserve |
The Personal Consumption Expenditure Price Index, which was unveiled on Thursday, is a different measure of inflation in the United States than the government's more well-known Consumer Price Index.
However, salaries adjusted for inflation have not grown as swiftly as they did before to the epidemic.
The latest indication that pricing pressures from rising interest rates and modest economic growth are abating is the cooling of the Federal Reserve's favored inflation index, which occurred last month.
According to a report released by the Commerce Department on Thursday, prices did not change from September to October after rising by 0.4% in the previous month. October had a 3% annual increase in consumer prices compared to September's 3.4% annual pace. For nearly two and a half years, this was the lowest inflation rate year over year.
Growth in so-called core prices also decreased when volatile food and energy expenses were subtracted. From September to October, they increased by only 0.2%, compared to a 0.3% gain in September. Core prices increased 3.5% when compared to a year ago, which is less than the 3.7% annual growth that occurred in September. Since core prices provide a reliable indicator of the anticipated future course of inflation, economists keep a careful eye on them.
At its next meeting in two weeks, the Fed is likely to maintain its key benchmark rate steady as inflation begins to decline. The most recent figures also indicate that, during the last three months of 2023, inflation will be lower than the Fed's own forecast.
Federal Reserve officials forecast in September that the October–December quarter's inflation rate would average 3.3%. Now since prices are expected to grow by less than that, it is more likely that Federal Reserve policymakers won't see the need to hike interest rates any more.
The drop in gas prices last month contributed to a decrease in inflation. Gas prices decreased by 4.9% in October compared to September. According to AAA, gas prices have decreased even further this month, with the national average as of Thursday being $3.25 per gallon.
On the other hand, food costs increased by 0.2% last month and were 2.3% more than the mean price a year earlier. Although less than in the previous year, such price increases are nonetheless higher than they were before to the outbreak.
There was a notable increase in several supermarket goods last month: October had a 1.2% rise in beef over September. Fruits and vegetables processed and milk had a 1% increase. The average cost of groceries is now 23% more what it was before the outbreak.
In an effort to combat inflation, the Fed has increased its benchmark rate eleven times since March 2022, from almost zero to almost five percent. The majority of analysts predict that rates will be lowered eventually, maybe as early as late spring.
Important Fed member Christopher Waller said on Tuesday that if inflation keeps falling, a rate reduction would occur by spring. Waller gave off the most upbeat tone of any Fed representative since the institution started hiking interest rates, suggesting that the likelihood of another rate increase was diminishing.
The US consumer spent enough between July and September to propel the economy to an annual rate of 5.2%, according to official data released on Wednesday. The government reported on Thursday that consumer expenditure increased by a very small 0.2% in the previous month.
The majority of experts predict that the current October–December growth period will likely see a significant slowdown due to the cumulative impact of rising borrowing rates on company and consumer expenditure.
During the epidemic, global supply systems were overextended and unable to keep up with the rising demand for products, which led to a spike in inflation as Americans were forced to pay more on gadgets, furniture, and appliances. The invasion of Ukraine by Russia also drove up the price of food and gasoline.
In June 2022, inflation reached its highest point at 7.1%, according per the Fed's favored measure released on Thursday. The cost of commercial loans as well as mortgages, car loans, and other consumer borrowing has increased due to rate rises by the central bank. The purpose of the Fed's credit tightening is to reduce borrowing and spending, calm the economy, and manage inflation.
Despite a slight decrease in inflation, total prices are still much higher than they were before to the epidemic that started in February 2020, which has left many Americans optimistic about the state of the economy. Prices for consumers are still around 19% higher than they were before to the outbreak. The majority of Americans' pay increases have been marginally higher than that. However, salaries adjusted for inflation have not grown as swiftly as they did before to the epidemic.
However, the majority of analysts now predict that, over the course of the next year or two, inflation will gradually decline to the Fed's 2% objective. One of the biggest parts of the government's pricing index, the cost of new rentals, has been declining gradually, according to real-time statistics. These numbers eventually find their way into the government's calculations and ought to help lower reported inflation.
Regarding the future of inflation, several Fed members are sounding more upbeat. Waller said in comments on Tuesday that he was "extremely confident" in the Fed's ability to "slow the economy and get inflation back to 2%" via its interest rate policy.
The Personal Consumption Expenditure Price Index, which was unveiled on Thursday, is a different measure of inflation in the United States than the government's more well-known Consumer Price Index. The CPI increased 3.2% in October compared to a year earlier, according to a government study released earlier this month.
The PCE index is used by the Fed in part because it takes into consideration how consumer behavior changes in response to inflation, such as a shift from pricey national brands to less expensive retail brands.
