The latest, most comprehensive inflation data was released today: U.S. prices barely increased (0.1%) in May and the annualized rate from the raw numbers is only 1.5%. For the last 6 months, prices have increased at an annualized 3.4% rate, and for the last year 3.8%. Things are getting better since the spike in prices caused by the invasion of Ukraine: First, oil and gas prices started to fall back last year (-21.9% over the last 12 months); then food prices started to stabilize early this year (1.9% increase over the last 6 months). Now, even service prices, like housing (down to a still-too-high 4.1% rate in May), transportation (1.2% in May), and recreation (-3.8% in May) are leveling off. Prices at restaurants are still increasing quite rapidly, though (8% in May; 7% over the last 6 months). All of this slowdown in inflation has been achieved without any increase in unemployment rates (so far).
The table above shows annualized 1 month, 6 month, 12 month, and 11 month (!) inflation rates for U.S goods and services. The prices of goods are well under control now. Service price increases are still a bit too high, but declining nicely. That 11 month rate is a sort of tease — nobody measures inflation over the last 11 months! But the thing is, last June of 2022 had a big spike in prices. So next month’s “headline” (12 month) inflation rate is bound to be excellent too, if for no reason that last year’s June spike will have rolled off the 12 month average!
We’re succeeding in lowering inflation without having to reduce jobs — that’s a very big f’ing deal. Paul Krugman explains it better than I ever could: there’s a gift link to his analysis in this diary.
Economists had assumed it would take a doubling (or more!) of the unemployment rate to get inflation heading down. They were wrong — prices are leveling off because input prices, like food and oil, are falling, and because the big Covid-era wage bump was a one-time deal — wages are still growing decently, but not so fast as to start a wage-price spiral or an cycle of inflationary expectations.
It will be hard to break through with good economic news in this media. If a Republican administration had pulled off an economy this good after the huge shock of the pandemic, the media would be praising it every day.
I will admit I’m surprised by the U.S. economy’s resilience to the Fed’s extreme rush to raise interest rates last year. But Bidenomics seems to be threading the needle, at least so far.