Inflation Eases, but Still Above Federal Reserve’s 2% Target

Inflation Eases, but Still Above Federal Reserve’s 2% Target

Published: Aug 16, 2023
by Small Business Editor
In Small Business News

The latest Consumer Price Index (CPI) data suggests inflationary pressures in the U.S. are easing, yet the numbers remain above the Federal Reserve’s desired 2% threshold.

As the Bureau of Labor Statistics reported, the CPI rose by 3.2% year-over-year in July, slightly less than anticipated. This monthly increase was largely attributed to a surge in shelter costs, which saw a 0.7% hike, accounting for more than 90% of the overall monthly inflation. Notably, shelter costs have jumped by 7.7% from the previous year.

However, the core CPI, excluding volatile components like food and energy, rose by 0.2% over the month, translating to an annual rate of 4.7%. This was also below expectations and represents the lowest rate since October 2021.

Other notable changes included increasing food prices by 0.2%, while energy costs by a mere 0.1%. In contrast, used vehicle prices dipped by 1.3%, medical care services fell by 0.4%, and airline fares plummeted by 8.1%.

The data offers mixed sentiments for economic analysts and policymakers. “It is not quite ‘mission accomplished’ yet, but significant progress on the inflation front has been made,” commented Sung Won Sohn, chief economist at SS Economics and professor of economics and finance at Loyola Marymount University. “On balance, the inflation picture has improved significantly. The Federal Reserve will stop raising the interest rate soon.”

Since March 2022, the Federal Reserve has increased its benchmark interest rates 11 times, with speculation over further hikes dividing opinions among its officials.

Despite these hikes, the U.S. economy remains resilient. The Gross Domestic Product (GDP) saw 2% and 2.4% increases in the first two quarters of 2023. Forecasts from the Atlanta Fed project a 4.1% growth in the third quarter. Moreover, with unemployment nearing its lowest since 1969, consumers continue to spend, albeit with rising credit card debt.

Leading financial institutions, including Bank of America, Goldman Sachs, and JPMorgan Chase, are optimistic, predicting the U.S. is likely to dodge a recession despite aggressive rate hikes.

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