Inflation in the United States fell in November, marking the first decline since early 2020 when the country was facing the impacts of the COVID-19 pandemic. This decrease is seen as a positive sign that the Federal Reserve's efforts to curb inflation through interest rate hikes are working. The Commerce Department reported that the Federal Reserve's preferred measure of inflation, the personal consumption expenditures (PCE) index, showed a 0.1% drop in consumer prices last month compared to October.
The year-over-year increase in consumer prices was also lower than economists had predicted, rising only 2.6% from November 2022. This drop in inflation is a relief for Americans who have been facing higher prices and the potential for painful price shocks. It also suggests that the Federal Reserve may be able to implement interest rate cuts in 2024, which could lead to reduced interest rates on mortgages and credit cards.
The report from the Commerce Department also revealed that core inflation, which excludes volatile food and energy prices, rose by 0.1% from October and 3.2% from the previous year. While this increase is still higher than the Fed's target of 2%, it shows progress in the fight against inflation.
The decline in inflation has already provided some relief for Americans. Prices for various goods and services have decreased over the past year, including bacon (down almost 1%), lettuce (down more than 10%), tomatoes (down 4%), car rentals (down 11%), air fares (down 12%), and furniture (down 3%).
The Federal Reserve's rate hikes over the past two years, totaling 11 since March 2022, have contributed to the decrease in inflation from the four-decade highs experienced in the previous year. This has led to hopes that the Fed can achieve a "soft landing," bringing inflation back to its 2% target without causing a recession.
The Labor Department's consumer price index, which is closely monitored, showed a 3.1% increase in prices last month compared to November 2022. While this is still higher than the Fed's target, it represents a significant decrease from the 9.1% year-over-year increase observed in June 2022.
The Federal Reserve's decision not to raise rates at its last three meetings, as well as its indication that it expects to cut rates three times next year, reflects its confidence in the progress against inflation. Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, stated that a sustained easing in price pressures will support a shift in the Fed's policy stance, with rate cuts likely to begin in the middle of next year.
Despite concerns that higher interest rates would lead to a recession, the U.S. economy and job market have remained strong. This has further bolstered hopes that the Fed can successfully achieve its inflation target without negatively impacting the economy.
Overall, the decline in inflation in November, as indicated by the PCE index, suggests that the Federal Reserve's efforts to curb inflation through rate hikes are paying off. This provides hope for Americans who have been facing higher prices, as well as the potential for lower interest rates in the future. The progress against inflation also indicates a positive outlook for the U.S. economy and job market.
