Inflation Likely Fell Again In August But Theres A Long Way To Go
Inflation Likely Fell Again In August, But There’s A Long Way To Go https://digitalalaskanews.com/inflation-likely-fell-again-in-august-but-theres-a-long-way-to-go/
Inflation is expected to have slowed again last month thanks to falling prices for gas, food and used cars, a new government report is expected to show Tuesday, although it could be a long time before prices fall back to pre-pandemic levels for families and businesses.
Data to be released by the Bureau of Labor Statistics could show August prices rose roughly 8 percent from the year before. That would be down from the 8.5 percent notched in July, and 9.1 percent from June. And while those measures are dangerously above normal levels, policymakers, economists and the American public are eager for consistent signs that inflation peaked this summer after soaring to the highest level in 40 years.
Inflation is the economy’s biggest problem, and its toll falls hardest on vulnerable families with little room to absorb higher costs for rent, groceries and everything in between.
The Federal Reserve has been fighting inflation by raising interest rates, which are designed to slow down the economy by making all kinds of investments and loans — from mortgages to auto loans to hiring — more expensive. The Fed’s goal is to use higher rates to dampen demand in the economy, especially since its tools can’t do anything to fix issues like supply chain logjams, worker shortages or the war in Ukraine.
“There’s a wider story than just ‘prices falling,’ ” said Joe Brusuelas, chief economist at RSM. “That’s demand, and that’s the object of policy right there.”
But the fight against inflation brings heavy consequences, and could eventually jolt the economy too forcefully, triggering a recession and a new wave of job losses. Still, the Fed has sent a clear message: it is pressing on.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Fed Chair Jerome H. Powell said in a closely watched speech last month. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
Inflation is also playing a political role, influencing the midterm elections. The Biden administration has been hammered by Republicans for sprawling stimulus efforts from earlier in the pandemic that helped turbocharge the economy. And this summer, surging gas prices in May and June soured Americans’ feelings about the economy even more, causing consumer sentiment to plummet and pulling down President Biden’s poll numbers.
Republicans have been looking to frame their political message around inflation as they vie for control of the House and Senate. Yet, inflation has lately been losing some potency with voters, especially as gas prices have consistently fallen from their summer highs and the job market is still cranking.
Indeed, Americans are beginning to feel better about the economy, and consumer sentiment, which collapsed in June, has been inching up. Lynn Farrell, president and owner of Chicago-based Windy City Travel, said business is booming, especially on luxury travel. People want to fly first class after long-delayed vacations. Farrell will put together safari packages for clients seeking even more extravagant trips.
Airfares have come down from their summer surges, Farrell said. And for those who can afford it, sheer excitement is cutting through inflation’s toll.
“Travel is such an interesting barometer on consumer confidence,” Farrell said, en route to Chicago from a staff trip in Cancún. “We see that when consumers start to get a little bit anxious, the booking windows shorten, or people don’t book travel out as far. … But travel may actually escape a lot of what’s happening in the economy because there’s such pent-up demand.”
Survey data released Monday from the New York Fed also showed American consumers expecting significant declines in future inflation levels. That is welcome news for Fed officials gathering for their September policy meeting next week. Inflation expectations can be self-fulling, and the Fed’s job gets harder if households and businesses anticipate that inflation will stay high and change their behavior as a result.
The Fed has been raising rates at its most aggressive pace in decades, and increased them by a whopping three-quarters of a percentage point in July. Fed watchers and the financial markets increasingly expect another increase of that scale next week, since the Fed is rushing to get rates high enough to slow down the economy.
“[The Fed] has said, ‘Listen, we’re not where we need to be, but we’re at least not as far behind as we were,’ ” said Diane Swonk, chief economist at KPMG.
Still, the Fed’s moves can address only certain problems in the economy. Russia’s February invasion of Ukraine already caused a massive run-up in energy and gas prices this year, and White House officials are alarmed about a looming energy crisis in Europe after Russian President Vladimir Putin’s threats to force a bleak winter on the continent.
“The progress in inflation may not prove tenable should those geopolitical tensions intensify and Russia shuts off all supply of oil,” Brusuelas said. “Then we’re up for another run of supply shocks.”
Read More Here