Inflation in the United States is showing signs of deceleration as the consumer price index rose lesser than expected in the month of November. Even though the rising tendency of CPI has slowed down, the inflation rate in the economy is still higher than the target set by Federal Reserve.
According to the latest data released by the Labor Department, Consumer Price Index rose by 7.1% in the past 12 months. In October 2022, the Consumer Price Index stood at 7.7%. In a month-to-month comparison, CPI rose by 0.1% in November, In October, the monthly CPI increase was nearly 0.4%.
Major components of high inflation, natural gas prices, gasoline prices and electricity prices went down last month as international oil prices are showing decreasing tendencies. Gasoline prices dropped 2.0% after rising 4.0% in October.
Despite a fall in gasoline and natural gas prices, food prices continued to climb in November 2022 by 0.5%. In October 2022, prices of food had risen by nearly 0.6%. As prices of fruits and vegetables, cereals and nonalcoholic beverages are increasing every month, the cost of food prepared and consumed at home increased by 0.5% last month.
While the cost of purchasing new motor vehicles and household furnishings remained unchanged during the last month, healthcare-related costs and airline ticket prices fell by 0.5% and 3.0% respectively. Prices for used cars and trucks also dropped by 2.9 per cent in November.
As inflation is cooking down, market experts and economists are expecting US Federal Reserve to change its aggressive rate hike policy. On Wednesday, US Federal Reserve will probably hike a key interest rate by 0.5%, snapping a string of four straight 75-basis-point increases.
In order to bring down high inflation in the economy, the Federal Reserve of the United States has been following an aggressive interest rate hike policy. In June 2022, the consumer price index increased by 9.1 per cent which has been a high inflation rate since 1981. Since March 2022, US Federal Reserve has been following its fastest rate-hiking cycle since the 1980s.
By increasing key borrowing and lending rates, Federal Reserve hopes to reduce cash flow in the economy. As cash flow reduces in the domestic economy, demand will reduce for commodities, which will bring down prices and thus inflation. The central bank has so far increased the interest rates by 375 basis points in 2022.
Even though inflation is easing in the economy, high wage growth in the labor market is a cause of concern for the US Federal Reserve as it might lead to another spike in inflation. Higher interest rates are also pushing US domestic economy to the brink of a recession. Various economic analysts and staff within US Federal Reserve have warned that the probability of recession is increasing each time US Feds hike interest rates.
