Trending Now: Inflation Rate Falls for a 12th Straight Months
Exciting news in the economic sphere as the inflation rate has witnessed a downward trend for the 12th month in a row, dropping to 3% this June.
Downward trend for the 12th month in a row
Previously, financial pundits had expected a decrease in the 12-month consumer price hikes from 4% in May to around 3.1% in June — merely a smidgen above the Federal Reserve’s target inflation rate of 2%. The substantial plunge was primarily propelled by a decline in gas prices, tumbling down to $3.54 from a steep $4.66 a year ago, as reported by AAA.
This decline gives a glimmer of hope for the U.S. economy, suggesting it might be on the verge of curbing the inflation woes that have plagued it over the last two years. Wall Street responded to this report with enthusiasm, with major indices making significant headway before the market opened at 9:30 AM.
However, the bigger economic picture — particularly the "core" inflation figure, which excludes volatile components like food and energy prices — could prove to be a more significant burden on consumers. This was stated by Riccardo Trezzi, an esteemed lecturer at the University of Geneva and founder of an inflation-focused consultancy.
U.S. Bureau of Labor Statistics
The core figure for June stands at 4.8%, compared to May’s 5.5%, according to the Bureau of Labor Statistics.
Core Inflation: U.S. Unemployment makes remarkable recovery
As we recall, the U.S. unemployment rate made a remarkable recovery from a high of 5.9% in June 2021 to an average of approximately 3.5% by the year's end. Currently, it stands at 3.6%, but the Fed anticipates it rising to 4.5% by 2024.
This resilience in the labor market can be attributed to the vigorous measures taken by the U.S. government and the Fed to uphold the economy amid the Covid-19 pandemic. These measures continue to provide momentum. In an effort to curb this momentum, the Fed has been raising interest rates, aiming to moderate demand and investment by escalating the cost of goods and services. However, it takes time for these interest rate hikes to ripple through the economy.
A Soft Economic Landing?
Despite the uncertainties, some believe that the U.S. has essentially accomplished a "soft landing," managing to pull inflation down without substantial job losses. However there could be potential rough waters ahead, especially with the 12-month core inflation rate lingering above 5% after decades of averaging just 3.6%.
The Battle Against Inflation: An Ongoing Saga
Many experts, including former Treasury Secretary Larry Summers, believes that the Fed has been underestimating inflation for the past two years, suggesting that more aggressive interest rate increases will be necessary to manage it effectively.
However, some voices in the financial sphere maintain a brighter outlook. Austan Goolsbee, president of the Chicago Federal Reserve, believes that the economy could be on a unique "golden path" to lower inflation rates without going into a recession.
If we take a closer look at the forces behind the inflation data, used car prices and airfare costs stand out as key contributors. Supply chain disruptions and labor costs have caused a surge in auto market prices, but these are now showing signs of stabilizing. Similarly, airfares have seen a steep drop due to decreased jet fuel costs and increased capacity on popular routes.
More than two years into the current inflation episode, debates continue regarding its root causes, its potential longevity, and the monetary policy's efficiency in reining it in.
Mark Hamrick, senior economic analyst at Bankrate, sums it up aptly: “Neither consumers nor the Federal Reserve are popping the champagne just yet. Americans have put the worst of inflation behind..."
While the debate over the causes and duration of inflation continues, the general consensus is that patience and strategic action will be key to steering the economy back towards the desired 2% inflation rate.
"Neither consumers nor the Federal Reserve are popping the champagne just yet", reminds Mark Hamrick, senior economic analyst at Bankrate.
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Disclaimer
Please note that the information presented in this blog post is intended strictly for informational purposes and does not constitute financial advice or a guaranteed forecast of market trends. Every financial situation is unique, and you should consult with a professional financial advisor or a mortgage loan originator for advice that caters to your specific circumstances.