Despite the difficulties price hikes continue to put on American households, inflation in the United States slowed down again last month.
The government said Tuesday that consumer prices increased 7.1% in November compared to a year ago.
That figure dropped significantly from 7.7% in October to a recent top of 9.1% in June. It was the fifth slowing in a row.
The consumer price index increased just 0.1% when measured month to month, which provides a more recent perspective.
And so-called core inflation, which the Federal Reserve constantly monitors and excludes volatile food and energy prices, decreased to 6% from a year earlier.
Core prices increased by 0.2% from October to November, the smallest increase since August 2021.
Overall, the most recent data offered the best indication that the inflation rate in the United States is gradually decreasing following a price acceleration that started approximately 18 months ago and peaked early this year at a four-decade high.
Since their summer peak, gas prices have decreased. Used car prices, medical expenses, airfare, and hotel rates decreased in November.
Furniture and power rates also increased.
However, grocery costs continued to be a problem last month, up 12% from a year ago and 0.5% from October.
Housing costs increased as well. However, a large portion of that data does not reflect current indicators showing decreases in housing prices and rentals.
Wall Street warmly received the better-than-expected inflation numbers released on Tuesday as another piece of evidence that the Federal Reserve should ease up on and possibly stop raising interest rates by the start of next year.
Futures for the Dow Jones Industrial Average predicted a rise of more than 700 points when trading started.
The Fed intends to continue raising interest rates notwithstanding the further softening of inflation seen last month.
For the seventh time this year, the central bank is expected to increase its benchmark rate on Wednesday.
This will result in higher borrowing rates for both consumers and companies.
According to economists, a recession is expected to occur next year due to the Fed’s continued tightening of credit standards to combat inflation.
Several factors have begun to ease the pressure on prices, but it is unlikely that they will be sufficient to quickly return total inflation to the levels Americans were accustomed to.
Regular gas now costs, on average, $3.26 per gallon nationwide as of Monday, down from $5 per gallon in June.
The costs of importing goods and parts have decreased due to the unclogging of numerous supply chains.
Lumber, copper, wheat, and other commodity prices have been steadily declining, which often lowers the cost of food and building.
Even though inflation is still much beyond the Fed’s annual objective of 2% and may not meet it until 2024, some economists and Fed officials see these numbers as a sign of improvement.
To better understand the trajectory of inflation, Fed Chair Jerome Powell has stated that he is monitoring price trends in three different categories: goods, excluding volatile food and energy costs; housing, including rents and the cost of homeownership; and services, other than housing, such as auto insurance, pet services, and education.
Powell remarked that there had been some progress in lowering inflation in housing and products but not in the majority of services in a speech he gave two weeks ago in Washington.
Since the summer, the cost of tangible products such as used vehicles, furniture, clothing, and appliances has decreased steadily.
The cost of used cars has decreased for most of this year after skyrocketing 45% in June 2021 compared to a year earlier.
Nearly one-third of the consumer price index comprises housing costs, which are still rising. However, after posting scorching price acceleration at the height of the pandemic, real-time indicators of apartment rents and property prices are now beginning to decline.
According to Powell, the drops will probably show up in government figures the next year and should assist lower total inflation.
Powell predicted that servicing prices would likely continue to be high.
That’s partly because sudden salary increases are increasingly significant in driving inflation.
Businesses that provide services, like hotels and restaurants, require a lot of labor.
Additionally, pricing pressures continue to increase in that economy sector as typical earnings proliferate at a rate of 5% to 6% annually.
Services companies frequently raise their prices to cover some of their rising labor costs, which feeds inflation.
Additionally, higher income encourages increased consumer spending, which enables businesses to boost pricing.
Powell stated, “We want wages to rise sharply, but they have to rise at a level consistent with 2% inflation over time.”
After four consecutive three-quarter-point rises, the Fed is anticipated to boost its short-term benchmark rate by a half-point on Wednesday.
The benchmark rate would then be at its highest point in 15 years, between 3.75% and 4%.
If inflation stays relatively low, they anticipate the Fed will further reduce its rate hikes next year, with quarter-point increases in February and March.