Key Takeaways:
- The US Central Bank reported inflation dropped to 7.7% from an 8% forecast.
- Overall, inflation hurts economies but has recently benefited US automotive, clothing, and food prices.
- The Federal Reserve wants to get inflation near 2% to renew an optimum balance between borrowing costs and vital economic activity.
WISCONSIN (CoinChapter.com) — A cringing feeling is typically aroused upon hearing the word inflation. Some benefits, though, offer people relief in an inflationary environment.
Last week, the US Central Bank reported that inflation dropped to 7.7%—against the expected 8%—from the previous month’s 8.2%. A lower consumer price index shows the Fed’s aggressive rate hikes have worked so far. A 7.7% inflation is better, but it is far off the Fed’s ideal 2% goal.
Because of an improvement in inflation, the likelihood of another 75 basis points (bps) hike at next month’s FOMC meeting is very low. The odds of a 50 bps increase are now at 80.6%.
Areas of Relief
When the inflation spike first hit, automobile inventories were squeezed because buyers flocked to dealerships to grab cars before risking even higher interest rates. Inflation is now easing, and cars are becoming available again.
Most people who were thinking about buying a car put the procrastinating behind them and acted quickly. Now that most of those people bought what they wanted, dealer sales lots are filling up again, and along with that are lower borrowing costs.
Clothing prices fell 0.7% in October after climbing 4.1% over the past 12 months.
The decline came as the market approached the holiday season. Because consumers hunkered down due to inflation’s effects on their wallets, the National Retail Federation reported a spending forecast of 6%-8% over 2021. As a result, expectations are $942.6 billion in sales versus last year’s $889.3 billion.
At this time, food price increases have slowed — a plus for consumers. Grocery costs went up in the first place due to the Russia-Ukraine war; wheat and fertilizer became more scarce, thus limiting supplies.
Grocery prices are up 10.9% on the year, but after the most recent inflation print from last week, it was reported that the rate of increase is slowing down.
Reports show there was a 0.2% decrease from August to September.
Inflation Can Be a Good Thing, But Like Everything – In Moderation
A light level of inflation benefits an economy; that is why the Federal Reserve has a goal of 2% – not 0%. This is because the Fed wants an incremental expansion of jobs and, simultaneously, to maintain price balance.
When there is a low level of inflation, it allows (and gently reminds) households to make well-thought decisions regarding saving and borrowing.
The Fed adjusts the money supply, and the consumer manages their money flow – it all works hand-in-hand.
When inflation gets out of control, as we are witnessing today, things go awry with an economy. Ultimately, the Fed’s goal is to make it painless for people to borrow money, and in turn, that will stimulate economic activity.
