Inflation in the United States continued to decline as gas prices fell, further cooling most costs and reinforcing the Federal Reserve’s strategy of maintaining higher interest rates.
Last month’s inflation data arrived a day before the Federal Reserve’s two-day policy meeting to announce the latest decisions on interest rates. The Fed is expected to keep the rates unchanged for the remainder of the year.
In a report by the Labour Department, the Consumer Price Index, a widely watched measure of the cost of living, edged 0.1% higher last month, making it 3.1% higher than a year ago. This number matches the expectations of economists.
A drop of 6% in gas prices over the month counterbalanced the increase in the costs of food, shelter, medicine, car insurance, and other items. The report clearly indicates that inflation is on a slump while the labour market is staying relatively favourable to workers, increasing the chances for a ‘soft landing’ for the economy, instead of the economic crash predicted by experts last year.
Core CPI, a measure that excludes food and gas, increased 0.3% after a 0.2% increase in October and is up 4% from last year.
According to a survey of economists by Wall Street Journal and Dow Jones Newswire, Stock futures ticked up immediately following the report before giving back those gains. The inflation numbers were in line with forecasts.
Other leading economists expect the Fed to slash the rates in early 2024. However, the latest CPI statistics showcase how inflation, which skyrocketed during the pandemic, remains persistent despite falling sharply from an annual rate of more than 9% in June of 2022.
Between March 2022 and July, the Federal Reserve increased its benchmark interest rate to a 22-year high and has maintained it, raising borrowing costs on all kinds of borrowing to discourage spending and allow supply and demand to rebalance. The Fed has a target to lower the inflation to an annual rate of 2% and keep it below that.
“Rates are at a peak and the incoming data will show a further cooling in inflation and a loosening in labour market conditions. This should allow the Fed to pivot to lowering rates, likely by the middle of next year," said Rubeela Farooqi, chief economist at High-Frequency Economics.