[ad_1]
A customer shops at a supermarket in Washington, D.C., Oct. 28.
Photo:
Ting Shen/Zuma Press
Consumers benefited from a modest inflation reprieve in October, according to data released Thursday, and Wall Street seems happier than most households at the news. Markets soared on the hope that inflation progress might slow the Federal Reserve’s monetary tightening, but the data also show how much work the Fed has left to do.
An increase of 7.7% in the overall consumer-price index compared to a year ago remains unusually high, although it marks the fourth monthly decline in the inflation rate from a peak of 9.1% in June. Core inflation excluding food and energy was 6.3%, which is down from 6.6% in September but has yet to show a lasting downward trend.
Investors (desperately want to) believe this means inflation is coming under control. Some caveats are in order. Prices still are rising at an abnormally fast pace, and households will notice that a falling inflation rate is not a stable price level. Much of the disinflation comes via prices for goods, which declined 0.4% from September to October, notably for durables such as appliances. This is a result of a cooling housing market and is the kind of demand destruction the Fed says it wants to achieve.
Prices for services, in contrast, rose 0.5% month-to-month, and food and energy prices rose by 0.6% and 1.8% respectively on a monthly basis. Inflation remains widespread across the economy and thus hard to tamp down.
One consequence of leaning on the Fed to fight inflation on its own by suppressing demand is that households are left with few ways to boost their standard of living. Inflation-adjusted weekly earnings fell in October, and are now down 3.7% in the last 12 months.
At this rate it will take a long time for households to recover the purchasing power they’ve lost during this inflationary bout, even if the inflation rate moderates. Congress and the Biden Administration could help with policies to stimulate productive investment to fuel new supply and real wage growth, but on Wednesday President Biden was still deploring “trickle-down” policies. There’s only been falling real incomes on his economic watch.
That leaves the Fed to fight inflation alone. Modest disinflation, especially in spending related to housing, is a sign that this year’s tightening may be having some effect. But Chairman
Jerome Powell
still is far from his 2% inflation target. He has signaled that the Fed may slow its pace of interest-rate increases but will maintain its resolve to contain inflation. He can’t afford to waver, as much as markets may wish that he would.
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the November 11, 2022, print edition.
[ad_2]
Source link
(This article is generated through the syndicated feeds, Financetin doesn’t own any part of this article)
