From chicken wings to used cars, inflation begins to ease its grip
But there’s still a long way to go before consumers feel much relief or the Federal Reserve hits its goal of a 2 percent annual price target
A shopper looks at Black Friday displays at a Walmart store in Wilmington, Del., on Nov. 25. With inflation at record levels, retailers expect shoppers to be looking for especially good deals as discretionary spending falls.
The price of gasoline is dropping like a rock. Chicken wings are suddenly a bargain. And retailers drowning in excess inventory are looking to make a deal.
After more than a year of high inflation, many consumers are finally starting to catch a break. Even apartment rents and car prices, two items that hammered millions of household budgets this year, are no longer spiraling out of control.
Global supply chains are finally operating normally, as more consumers spend more on in-person services like restaurant meals and less on goods like furniture and computers that come from an ocean away. The cost of sending a standard 40-foot container from China to the U.S. West Coast is $1,935 — down more than 90 percent from its September 2021 peak of $20,586, according to the online freight marketplace Freightos.
Biden’s rescue plan made inflation worse but the economy better
The moderation in inflation is just beginning to appear in government statistics. In October, the Federal Reserve’s preferred price gauge, the personal consumption expenditures index, posted its smallest monthly increase since September of last year, and is up 6 percent over the past 12 months. The better-known consumer price index is rising at an annual rate of 7.7 percent, down from 9.1 percent in June.
“The worst of the inflation is behind us,” said Steven Blitz, chief U.S. economist for TS Lombard in New York. “The question is where does inflation settle?”
The Fed has been raising interest rates sharply since March in a bid to get inflation back to its 2-percent price stability target. Fed Chair Jerome H. Powell on Wednesday noted signs of progress, but said it was far too early to claim victory. Friday’s stronger-than-expected jobs report, which showed wages rising too quickly for policymakers’ tastes, only underscored the point. The central bank does not expect to reach its inflation goal until 2025.
“It will take substantially more evidence to give comfort that inflation is actually declining. By any standard, inflation remains much too high,” Powell told an audience at the Brookings Institution.
Still, there are clear signs of improvement in merchandise prices, as consumers resume their pre-pandemic spending patterns. Excluding volatile food and energy prices, goods prices rose in October by 5.1 percent, down from a 12.3 percent annual rate in February.
But as goods prices begin cooling, pressure is building on services. Rising demand and limited supply — think short-staffed restaurants — has services inflation running at an annual 6.7 percent rate, more than twice the year-ago figure.
“The expectation is that goods prices will continue to disinflate. But services inflation will more gradually slow and will be much stickier,” said Kathy Bostjancic, chief economist at Nationwide.
Most of what is happening now with prices reflects developments in specific markets or consumers’ return to pre-pandemic routines. The plunge in ocean shipping costs, by itself, has stripped roughly 0.7 percentage points from the inflation rate, Freightos chief executive Zvi Schreiber said.
By making credit more expensive, the Fed has put a major dent in the housing industry. With mortgage rates briefly topping 7 percent recently, pending home sales in October were 37 percent lower than one year earlier, according to the National Association of Realtors. But the full effect on the economy of higher interest rates will take many months to materialize.
Either way, consumers are unimpressed. Less than 1 percent of those responding to a recent Census Bureau survey said they had noticed prices for goods and services declining over the past two months. And 15.7 percent of households said they find it “very difficult” to pay their routine household expenses, a figure that is virtually unchanged from the 15.9 percent who reported affordability woes in June.
To be sure, in a $26 trillion economy, prices on some products are always falling even as many others rise. In June, when inflation reached its highest point in more than 40 years, prices nonetheless dropped that month for bacon, window coverings and men’s sweaters, according to the Bureau of Labor Statistics. So it’s important not to exaggerate the recent improvement.
That said, the global economic backdrop has shifted.
With Europe and the United Kingdom in recession and China hobbled by its restrictive “zero covid” policy, global demand for oil has sagged. A barrel of Brent crude now goes for about $85, one-third less than in early March following Russia’s invasion of Ukraine. As a result, the national average price for a gallon of regular gasoline is $3.47, down almost 8 percent from one month ago, according to AAA.
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But there’s still a long way to go before consumers feel much relief or the Federal Reserve hits its goal of a 2 percent annual price target
The price of gasoline is dropping like a rock. Chicken wings are suddenly a bargain. And retailers drowning in excess inventory are looking to make a deal.
After more than a year of high inflation, many consumers are finally starting to catch a break. Even apartment rents and car prices, two items that hammered millions of household budgets this year, are no longer spiraling out of control.
Global supply chains are finally operating normally, as more consumers spend more on in-person services like restaurant meals and less on goods like furniture and computers that come from an ocean away. The cost of sending a standard 40-foot container from China to the U.S. West Coast is $1,935 — down more than 90 percent from its September 2021 peak of $20,586, according to the online freight marketplace Freightos.
Biden’s rescue plan made inflation worse but the economy better
The moderation in inflation is just beginning to appear in government statistics. In October, the Federal Reserve’s preferred price gauge, the personal consumption expenditures index, posted its smallest monthly increase since September of last year, and is up 6 percent over the past 12 months. The better-known consumer price index is rising at an annual rate of 7.7 percent, down from 9.1 percent in June.
“The worst of the inflation is behind us,” said Steven Blitz, chief U.S. economist for TS Lombard in New York. “The question is where does inflation settle?”
The Fed has been raising interest rates sharply since March in a bid to get inflation back to its 2-percent price stability target. Fed Chair Jerome H. Powell on Wednesday noted signs of progress, but said it was far too early to claim victory. Friday’s stronger-than-expected jobs report, which showed wages rising too quickly for policymakers’ tastes, only underscored the point. The central bank does not expect to reach its inflation goal until 2025.
“It will take substantially more evidence to give comfort that inflation is actually declining. By any standard, inflation remains much too high,” Powell told an audience at the Brookings Institution.
Still, there are clear signs of improvement in merchandise prices, as consumers resume their pre-pandemic spending patterns. Excluding volatile food and energy prices, goods prices rose in October by 5.1 percent, down from a 12.3 percent annual rate in February.
But as goods prices begin cooling, pressure is building on services. Rising demand and limited supply — think short-staffed restaurants — has services inflation running at an annual 6.7 percent rate, more than twice the year-ago figure.
“The expectation is that goods prices will continue to disinflate. But services inflation will more gradually slow and will be much stickier,” said Kathy Bostjancic, chief economist at Nationwide.
Most of what is happening now with prices reflects developments in specific markets or consumers’ return to pre-pandemic routines. The plunge in ocean shipping costs, by itself, has stripped roughly 0.7 percentage points from the inflation rate, Freightos chief executive Zvi Schreiber said.
By making credit more expensive, the Fed has put a major dent in the housing industry. With mortgage rates briefly topping 7 percent recently, pending home sales in October were 37 percent lower than one year earlier, according to the National Association of Realtors. But the full effect on the economy of higher interest rates will take many months to materialize.
Either way, consumers are unimpressed. Less than 1 percent of those responding to a recent Census Bureau survey said they had noticed prices for goods and services declining over the past two months. And 15.7 percent of households said they find it “very difficult” to pay their routine household expenses, a figure that is virtually unchanged from the 15.9 percent who reported affordability woes in June.
To be sure, in a $26 trillion economy, prices on some products are always falling even as many others rise. In June, when inflation reached its highest point in more than 40 years, prices nonetheless dropped that month for bacon, window coverings and men’s sweaters, according to the Bureau of Labor Statistics. So it’s important not to exaggerate the recent improvement.
That said, the global economic backdrop has shifted.
With Europe and the United Kingdom in recession and China hobbled by its restrictive “zero covid” policy, global demand for oil has sagged. A barrel of Brent crude now goes for about $85, one-third less than in early March following Russia’s invasion of Ukraine. As a result, the national average price for a gallon of regular gasoline is $3.47, down almost 8 percent from one month ago, according to AAA.
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