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IS INFLATION slowing down? It appears so, as indicated by the latest consumer price index data, which rose just 0.1% in August, according to the Bureau of Labor Statistics’ latest publication. In other words, annual inflation slowed to 8.3%, after having been at a 40-year high of 8.5%.
The decline in fuel prices has led the slowdown in price increases. For example, the price of gasoline (which rose by as much as 18.3% in March) has seen significant declines during the months of July and August: 7.7% and 10.6%, respectively.
The price of fuels in general fell 11% during the month of August; however, they remain 68% above the price in August 2021, while gasoline remains 25% more expensive.
The fall in fuel prices is partly due to the moderation of oil prices in recent months in international markets, which were strongly impacted in 2021 by the crisis in supply chains and then Russia’s invasion of Ukraine.
Inflation is moderating but only for fuels, everything else remains costly
Price rises during August were led by increases in the cost of energy services, which rose by 2.1%. Electricity rose 1.5%, while gas services increased 3.5%.
The price of natural gas in the U.S. reached a peak not seen in 14 years, mainly due to the high temperatures that have led Americans to turn on their air conditioners, at a time when reserves of this hydrocarbon are scarce.
Americans’ food costs continue to rise at an accelerated rate. In August, food costs rose 0.8%, eating at home increased 0.9%, while the cost of eating out was up 0.9%.
Core inflation, which measures the rise in the cost of living excluding food and energy — because they are more volatile priced goods — stood at 0.6% in August, and annualized at 6.3%.
Among the indicators that most drove up core inflation were new vehicle purchases, which increased 0.8%, leases, which rose 0.7%, and medical services, up 0.8%.
Although prices continue to rise rapidly on several important goods and services in Americans’ basic basket of goods and services, declining fuel costs have moderated inflation considerably in August.
The FED is willing to “bring some pain” to households and businesses in order to continue moderating inflation.
The Federal Reserve expects that fuel and soon energy costs will continue to decline for the remainder of the year, and starting next quarter, so will the cost of food.
Jerome Powell, the Fed Chairman, has stated that the central bank’s main goal will be to control inflation until the third quarter of 2023, however, this will bring “some pain” to U.S. households and businesses.
Powell has repeatedly said that inflation disproportionately impacts poorer families, who have less available income to deal with the rising cost of living.
To control inflation, the Fed has embarked on the task of raising interest rates sharply to limit the circulation of money in the economy and thus slow economic activity and with it the rise in prices.
The Fed’s goal is to bring inflation back to its long-term target of 2%, however, this goal can be met at the cost of causing an economic recession.
Although the U.S. is technically already in a recession, Fed models estimate that Americans will begin to feel its impact in 2023, which will translate into fewer sales for businesses, fewer jobs available for workers, less revenue for the government, and possibly bankruptcy for some companies.
Analysts are still debating how severe the potential recession ahead for the U.S. will be in 2023.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica