(Washington) Inflation continued to slow in October in the United States, falling to its lowest level since spring 2021, and is expected to gradually return to normal as American households can no longer afford to consume as much.
Price growth in October stood at 3.0% year-over-year, compared to 3.4% in September, according to the PCE index, a gauge favored by the Fed, released Thursday by the Commerce Department.
The improvement is also notable over one month: prices in October remained identical to those in September, when they increased by 0.4% compared to August.
Joe Biden rejoiced, in a press release, that “this stable inflation helps give families the breathing room they need right now, especially during the holiday season.”
So-called core inflation – excluding food and energy –, which had driven prices upward for months, slowed slightly over the month to 0.2%, as expected and stood at 3.5% over the month. a year compared to 3.7% year-over-year in September.
“But we still have work to do: prices are still too high for too many families,” warned the American president.
The successive rate increases carried out by the American central bank (Fed) since March 2022 now seem to be taking effect. This increases the cost of credit, to dissuade households from consuming, and thus ease the pressure on prices.
In October, households significantly slowed down their spending (0.2%, compared to 0.7% the previous month), the Commerce Department also announced on Thursday.
Which purchases suffered the most? Cars and furniture, which “tend to be purchased on credit,” suggesting “that the lagged effect of Fed rate hikes is reflected in spending,” explains Ian Shepherdson, chief economist for Pantheon Macroeconomics.
Revenues increased by only 0.2% in October, compared to 0.4% in September.
The President of the New York Fed, John Williams, welcomed Thursday, during a conference, the “significant and welcome decline” in inflation which, nevertheless, “remains too high”, above the target of 2 %.
John Williams sees inflation slowing to around 2.25% in 2024, then “getting closer to 2% in 2025.” He expects GDP growth to slow in 2024 to around 1.25% – compared to 5.2% in the 3rd quarter at an annualized rate.
However, the recession should be avoidable, according to many economists.
“Growth is expected to slow, but will remain positive,” commented Rubeela Farooqi, chief economist for HFE, who sees the Fed starting to lower rates “by the middle of next year.”
These inflation figures, published less than two weeks before the next Fed meeting on December 12 and 13, should weigh in favor of maintaining rates at their current level of 5.25-5, 50%.
“We are at the maximum level of rates […] or almost,” said John Williams on Thursday, specifying that the current monetary policy is “the most restrictive in 25 years”.
He sees them remaining at a high level “for a certain time”, or even rising further if necessary, because “the risks are twofold”, between inflation and economic slowdown.
The situation is now gradually rebalancing on the job market, after two years of a labor shortage which caused wages to soar. This should help inflation get back on track, but also be accompanied by an increase in the unemployment rate.
Thus, nearly 1.7 million people were receiving unemployment benefits at the beginning of November in the United States, according to data also published Thursday by the Department of Labor.
This is the “highest level since the end of 2021, suggesting that people who lose their jobs are having a harder time getting a new one,” Ian Shepherdson further commented.
Another measure of inflation, the CPI index, published earlier in the month, on which Americans’ pensions are indexed, also slowed in October, to 3.2% year-on-year.
