The country’s abysmal inflation rate probably remained at a simmering level in October. This gave the Federal Reserve little reason to relax in its efforts to slow price rises by steadily increasing interest rates.
According to FactSet’s survey of economists, the Labor Department will report on Thursday that consumer prices rose by 8% over 12 months and by 0.6% between September and October. Core inflation, which excludes volatile energy and food costs, is expected to have risen 6.5% over the past year, and 0.5% between September and October.
The United States, like many other countries, is having difficulty controlling inflation. This is putting pressure on millions of households, and is dimming the economic outlook.
Inflation was accelerated by shortages in labor and supplies after the pandemic recession and by consumer spending that was fuelled by huge federal aid and cuts to food and energy following Russia’s invasion.
The Fed has already raised its benchmark interest rate six more times this year in substantial increments. This increases the risk of prohibitively high borrowing rates for auto purchases, mortgages and other high-cost expenditures leading to the global economy’s plunge into recession.
Midterm congressional elections ended Tuesday with inflation at the forefront of many voters’ minds. Their economic worries contributed to the loss of Democratic seats at the House of Representatives. However, Republicans did not achieve the massive political gains many expected.
Even though inflation is still high, some measures of it have begun to fall and may continue to do so for the foreseeable future. For example, most measures of workers’ salaries show that the recent strong pay increases have slowed down and are beginning to decline. Although worker wages are not the primary factor in higher prices, they can add to inflationary pressures by companies charging more for their labor.
Supply chain disruptions have been relatively unaffected, except for automakers who are still having trouble acquiring the computer chips that they require. Shipping costs are back at pre-pandemic levels. The backup of cargo vessels off Long Beach and Los Angeles ports has been removed.
Inflation should be reduced as the government begins to capture declines in rents as a result of real-time measures such as Apartment List or Zillow.
Although many are concerned that the economy may fall into recession next year and the job market will continue to thrive, there is no doubt that the country’s labor market has been resilient. Employers add an average of 407,000 jobs per month. The unemployment rate is only 3.7%, which is close to the half-century mark. The number of job openings is still high.
However, the Fed’s rate increases have caused severe damage to the American housing market. Over the past year, the average fixed rate for a 30-year mortgage was more than twice as high as 7%. It then fell slightly last week. Accordingly, housing investment fell at 26% annually in the July-September quarter.
Sales have declined due to higher mortgage rates. The decline in home prices is much slower than a year ago. They have also begun to fall monthly. New apartment lease costs are also decreasing.
Economists believe that the government’s method of calculating housing costs could have caused an increase in housing prices and a rise in inflation overall. The government calculates the cost of all rents. This includes most rents under existing leases. However, the rents being asked for in new leases are gradually declining.
Economists predict that prices will fall for key goods. Prices for used cars, which rose in value last year due to a shortage of computer chips, will likely drop from September to October. Although wholesale used car costs have been steadily declining, they have not yet shown any significant decline in retail prices.