US Inflation Crashes, Easing Economic Pressure

Another indication that inflation is abating and that Americans should profit from lower interest rates and be spared from excruciating price shocks in 2024 is the Federal Reserve's preferred price index, which decreased last month.

According to the Commerce Department's data released on Friday, U.S. consumer prices increased 2.6% from November 2022 and down 0.1% from October of last year. The biggest month-over-month decline since April 2020, when the COVID-19 epidemic was severely hurting the economy, occurred.

When volatile food and energy costs are excluded, so-called core inflation increased by 0.1% in October and 3.2% in comparison to the same month last year. The data indicates that there has been some more success against inflation than predicted by experts.

The Federal Reserve's 2% annual goal inflation rate is being progressively reached, which seems to be paving the path for rate reduction in 2024. This might thus result in reduced rates for credit cards and mortgages alike.

The benchmark 30-year fixed-rate mortgage is already seeing a decline in interest rates; last week it fell to 6.67%, the lowest level in six months, from 7.79% in October.

The burden of rising costs has already somewhat eased for Americans. Think about the cost of the components of a BLT sandwich: during the past year, bacon has decreased in price by over 1%, lettuce by more than 10%, and tomatoes by 4%. Hire car costs have dropped by 11%, airfares by 12%, and furnishings by 3%.

Federal Reserve's Strategy Amid Declining Inflation and Economic Strength

The pace of inflation has decreased from the four-decade highs it reached last year, following almost two years of Fed rate rises (11 since March 2022). The highly monitored consumer price index of the Labor Department increased 3.1% from November 2022 to last month; this was a decrease from the 9.1% year-over-year increase in June 2022.

The Fed, encouraged by the progress, has indicated that it intends to lower rates three times next year and has declined to increase rates at each of its previous three meetings.

The labor market and U.S. economy have maintained their strength in spite of popular expectations that increased interest rates would trigger a recession. This has increased optimism that the Fed may accomplish a "soft landing," meaning it can boost inflation to its objective of 2% year over year without plunging the economy into a recession.

The personal consumption expenditures (PCE) price index is the measure of U.S. inflation that the Commerce Department released on Friday. Year-over-year inflation was shown to have peaked in June 2022 at 7.1%.

The PCE index is preferred by the Fed over the Labor Department's CPI in part because it takes into consideration changes in consumer behavior when inflation spikes, such as a move away from expensive national brands toward less expensive store brands.

Additionally, according to Friday's data, consumer expenditure increased by 0.2% in October and 0.1% in November. October personal income increased by 0.3%, although last month it increased by 0.4%.