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Inflation is slowing down with no signs of a recession

The newest federal inflation data shows further promise that the economy will not fall into a recession.
Inflation is slowing down with no signs of a recession
Posted at 1:07 PM, Aug 08, 2023

It was a year and a half ago that prices for many goods and services first started to spike following the pandemic. It was a hardship for lots of Americans, so the Fed raised interest rates at a historic pace to slow spending and, hopefully, lower prices. 

Glenn Furton, professor of economics at Metropolitan State University of Denver, says the latest inflation numbers from the Fed are encouraging.

"I think people overall, economists overall, are more confident — maybe more confused but in a positive way about the fact that this has been a rather successful effort by the Fed to maintain slow, incremental increases in the interest rate to bring down the money supply and bring down the inflation rate," said Furton. 

A report issued last week shows the Personal Consumption Expenditures Price Index rose 3% in June. This index is like the Consumer Price Index which tracks the changing prices of goods, but it accounts for how people spend when prices are high, which is why the Fed typically prefers it.

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Back to that 3% number, though. It means prices in June of this year were 3% higher than they were in that month last year. It's an improvement from the 3.8% in May and the 4.3% in April. With a solid job market and unemployment near a 50-year low, Furton says it's promising data that shows the Fed has been able to temper prices without throwing the economy into the recession many had feared.

"Any way you look at it, this has been successful, or certainly more successful, compared to historical efforts to deal with these sort of shocks," said Furton. 

A separate report from the Labor Department showed that wages and salaries grew more slowly from April to June, suggesting that employers were feeling less pressure to boost pay. It's another strong indicator that inflation should slow over time, because companies are less likely to need to raise prices to cover their higher labor costs.

Like any assessment from economists, Furton says this is an interpretation and not a prediction. He said the Fed is worried about seeing these improvements and easing interest rates too soon, so there's no saying when those might start to get rolled back.

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