Some pressure is relieved by a slowdown in US Inflation.
The latest indicator that prices are cooling is the slowing of inflation in the United States last month. This is despite the continuing pressures on American households.
The government announced Tuesday that consumer prices increased 7.1% in November compared to a year ago. This was a sharp decline from the October peak of 7.7% and June’s record high of 9.1%. This was the fifth consecutive decline.
The consumer price index rose 0.1% when it was measured from month-to-month, giving a more current snapshot. Core inflation, which excludes volatile energy and food costs, and which the Federal Reserve closely tracks, was down to 6% from a year ago. Core prices increased 0.2% from October to November — the mildest increase in core prices since August 2021.
The latest data provided the strongest evidence yet that inflation in America is slowing down from the price acceleration which first occurred 18 months ago. It also reached a high of four decades earlier this year.
Gas prices have fallen from their summer peak. In November, the prices of used cars, hotel rooms, and airline tickets dropped. Furniture and electricity prices also fell in November. Although housing costs rose, much of the data does not yet reflect real-time measures showing declines in apartment rents and home prices.
Grocery prices are still a problem area. They rose 0.5% between October and November, and are up 12% over a year ago.
Many Americans are finding it difficult to pay for food due to these price increases. There are long lines at St. Mary’s Food Bank in Phoenix. They provided Thanksgiving meals for 19,000 families across Arizona last November.
Rosa Davila, a single, unemployed mother who was waiting in line to receive Tuesday’s package, stated that her three teenage children were eating snacks and granola throughout the day. “The food bank really solves our problems.”
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Alma Quintera, who was also waiting in her car said that her husband works full-time as a house painter and they still have to go to the food bank at least twice a month to feed their three school-age kids.
She said that the high prices of rent, bills, and food have had a real impact on her.
Jerry Brown, a spokesperson for St. Mary’s said that the main Phoenix location of the food bank distributed packages last week to 4,717 families. This is 63% more than the same week a decade ago.
According to economists, however, the most recent inflation figures suggest that there will be some relief in coming months.
Bill Adams, Comerica Bank’s chief economist, stated that while inflation was bad in 2022, the outlook for 2023 looks much brighter. “Supply chains work better, business inventories have increased, which has ended most of the shortages that fuelled inflation in 2020.”
President Joe Biden called the report on inflation “welcome news” for families across the nation and said that holiday shoppers would benefit from lower auto and toy costs. Biden admitted that inflation may not return to normal levels until next year.
The fact that new car prices didn’t change from October was a sign of November’s progress. New cars are 7.2% more expensive than they were one year ago. However, this is down from the 13.2% increase in cost per vehicle year-over-year in April (which was the highest recorded since 1953).
The fall in prices for new cars shows how supply chain snarls that have been unwound for most goods are now easing for semiconductors as well as other critical parts of the automotive industry. This should allow automakers to increase production and provide more vehicles for buyers, according to economists.
This also indicates that Fed’s aggressive interest rates hikes have made it more costly to borrow money for cars, homes, and credit cards. They have also slowed demand and limited the ability of auto dealers and buyers to charge more.
Wall Street welcomed the positive inflation data, which was better than expected and provided further support to the Fed’s plan to reduce or possibly halt its rate increases by the beginning of next year.
The Fed will likely raise its benchmark rate by half-point on Wednesday. This is the Fed’s seventh hike this year. This would be the fourth three-quarter-point increase in a row. A half-point hike would see the Fed’s key short term rate range from 4.25% to 4.5%. This is the highest level in 15 years.
This will increase the interest rates of consumers and businesses. Economists warn that if the Fed continues to tighten credit to combat inflation, it is likely to cause recession next year.
Jim Baird, an economist with Plante Moran Financial Advisers, stated that there is growing evidence that the worst inflation scare may have passed. “The possibility of a recession is on the horizon — the next obstacle in the road policymakers will have to navigate the economy around, or possibly through.”
Jerome Powell, Fed Chair, stated that he tracks price trends in three distinct categories to better understand inflation’s likely path: Goods, which exclude volatile food and energy prices; Housing, which includes rents as well as the cost of homeownership; Services, which are not related to housing such as education and auto insurance.
Two weeks ago, Powell spoke in Washington and noted that there has been some progress in easing inflation for goods and housing, but not in services. Some of these trends were evident in last month’s data. Prices for goods, which exclude food and energy, fell 0.5% between October and November, marking the second consecutive monthly drop.
Housing costs account for nearly a third in the consumer price index and are rising. After experiencing a rapid price acceleration during the pandemic, real-time home and apartment rent prices are beginning to fall. Powell stated that these declines should be seen in government data next year, which will help to reduce overall inflation.
Powell has remained focused on services as he believes they will continue to rise. Sharp increases in wages are a major contributor to inflation. Particularly labor-intensive services companies like restaurants and hotels are those that require high levels of staff. With average wages increasing at a rapid 5%-6% per year, prices are rising in this sector of the economy.
Inflation is perpetuated by services businesses that tend to pass some of their higher labor cost to customers by charging more. Companies can raise their prices by raising wages because of higher pay.
In November, prices for many services continued to rise. The cost of dental care rose 1.1% in October compared to October, and it is 6.4% more expensive than it was one year ago. Restaurant prices rose 0.5%. They are 8.5% higher than last year.
Auto insurance costs rose 0.9% in November, and are now 13.4% higher than last year. The average cost for auto repairs rose by 1.3% and 11.7% respectively last month.
Even in services (excluding housing), there were signs of cooling prices. For example, hotel prices, car rentals, and airline fares all fell in November.
After dropping 0.1% in October, the measure that approximates rent and services was stable in November. This measure rose 1.1% in April and June of this year.