Inflation Stalls Amid Pandemic-Era Pressures
Despite a decline in gas prices and a moderation in grocery costs, progress in taming pandemic-era inflation appears to have hit a roadblock in October. According to the Bureau of Labor Statistics, the consumer price index (CPI) rose 2.6% in October compared to the same period last year, an increase from 2.4% in September.
A Bumpy Path to Lower Inflation
While the October uptick may seem like a setback, economists and policymakers believe that broad price pressures are continuing to ease. Federal Reserve Chair Jerome Powell noted that economic data points to inflation “continuing to come down on a bumpy path.” This sentiment is echoed by Stephen Brown, deputy chief North American economist at Capital Economics, who stated that “the overall trend is positive.”
Trouble Spots Remain
However, there are still areas of concern. Auto insurance prices, for instance, have surged 14% since October 2023, according to CPI data. Vehicle insurance premiums face “upward pressure” due to a lag effect from earlier inflationary dynamics, Brown explained. Additionally, housing, the largest CPI category, is experiencing slow progress in reining in inflation, with shelter inflation taking a long time to adjust to the current housing market.
Relief at the Pump and Grocery Store
Consumers did see some relief in October, with inflation for groceries cooling on a monthly basis and gasoline prices falling 1%. Grocery prices are up about 1% since October 2023, while gasoline prices are down more than 12% in the past year. According to Mark Zandi, chief economist at Moody’s, grocery prices are “very, very tame” despite various supply-and-demand idiosyncrasies affecting certain food items.
Policy Changes Could Exacerbate Inflation
Economists warn that proposed policies, such as import tariffs and tax cuts, could stoke U.S. inflation if enacted. Placing an import tax on goods would likely lead U.S. companies to raise prices, while tax cuts could put more money in consumers’ pockets and boost spending. According to Bank of America economists, these policies would likely lead to an annual inflation rate of around 3% by the end of 2025, rather than the predicted 2.1% absent these policies.
Uncertainty Ahead
Much depends on how, when, and if these policies are enacted, economists said. While the return of inflation to the 2% target may prove short-lived, it remains to be seen how these policy changes will impact the economy and inflation rates in the coming years.
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