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US Inflation Alert Removed? Kluman: It’s not the ‘beginning of the end’

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We.Labour DepartmentThe Bureau of Labor Statistics (BLS) announced on the 10th that the Consumer Price Index (CPI) in July was the same as in June, ie “zero inflation” in the previous month, and that the average price of goods and services purchased by consumers was higher than in June. was not. This is the only time the new crown pneumonia epidemic has triggered a wave of recession. Is the US Inflation Problem Over?

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Nobel laureate in economicskrumano“This is not the end of inflation, or even the beginning of the end, but perhaps the end of the beginning,” he wrote in a New York Times column.

There’s no doubt about the latest numbers, Kruman said. There are several indications that this CPI report, and over the next few months, will show an increasingly lower inflationary trend. Not only have gasoline prices declined, trade surveys have pointed to a decline in inflation and supply chain issues gradually easing. “Zero inflation” was slightly lower than most observers expected, but not outrageously low.

US President Joe Biden‘s announcement of “zero inflation in July” has prompted many to accuse him of “lying” on the grounds that prices in July this year were up 8.5 percent from July last year. Kluman pointed out that these people do not clearly understand the difference between “monthly growth rate” and “annual growth rate”.

However, Kluman believes that a month of “zero inflation” does not necessarily mean that the inflation problem is solved. Economists understand that to get a better picture of “underlying inflation”, it is best to exclude volatile prices (often referred to as food and energy). However, many “core” inflation measures are now showing that inflation remains unacceptably high, indicating that the economy is still warming.

Therefore, Kreuman said the CPI report released on the 10th should not and should not prompt the Federal Reserve (Fed) to change its course, and the reversal has continued until recently.rate increaseHowever, the “Consumer Expectations Survey” released by the Federal Reserve Bank of New York on the 8th showed that “short, medium and long-term inflation expectations have declined significantly”, giving the Fed little reassurance.

Since inflation began to rise last year, Fed officials have been concerned that inflation could rise, meaning that businesses and consumers may begin to believe that “higher prices are the new normal” that can cause inflation to self-inflate. At that point, it will take a lot of work to bring down inflation, and it may take a long time for economic prosperity to sink seriously. That’s exactly what happened in the 1970s, and nobody wants that nightmare to come back.

The good news is that inflation is showing no signs of taking root. People’s expectations for future inflation are decreasing, not higher, and financial markets are also expecting much lower inflation than last year.

Despite the good news on inflation in the end, Kreuman said the Fed will certainly have to continue raising rates until it sees “clear evidence that underlying inflation is coming down.” Until then, though, the Fed has some breathing room to raise rates less aggressively and wait and see how the economy develops.

Overall, Kluman believes that cold inflation will have “little impact” on economic policy, but it is politically significant.

US Wages are still rising rapidly, which is one reason to believe that “underlying inflation” remains high. But at least for now, inflation has slowed, so workers will see real (inflation-excluded) wage increases, in fact, in July alone, the U.S. The average real salary in the state went up by 0.5 percentage points.

Falling petrol prices, cooling inflation, rising real wages, what does this mean for the US midterm election in November? difficult to say. But Republicans’ attitudes toward inflation have changed from gloating to hysteria, indicating that those who had hoped for higher inflation are beginning to worry.

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