Slowdown in inflation and consumption in the US

Inflation in the United States slowed in November, but with a slowdown in consumption just as the end-of-year shopping season began, which could herald a recession in 2023.

According to the PCE index, inflation fell to 5.5% year-on-year in November from 6.1% in October, which is used by the US central bank (Fed) and published on Friday by the Department of Commerce.

In one month the rise in prices was barely 0.1% when in October it had been 0.4%.

In the last nine months, the measures taken by the Fed to curb inflation seem to be beginning to show in the numbers.

Biden tweeted “Today we learned that incomes are up and inflation is down,” President Joe Biden celebrated. “Another reason for optimism as the holidays and the new year roll around.”

However, higher interest rates discouraged overspending as the holiday season began. Despite the Black Friday and Cyber Monday deals in late November, consumer spending only rose 0.1% versus 0.9% in October, as expected. And consumers spent more on services than on goods.

Observed Ian Shepherdson, an economist at Pantheon Macroeconomics, in a note, “It seems reasonable to expect people to be more cautious now that they have spent almost half of what they saved on the pandemic and labor market conditions are easing.”

The labor shortage in the United States for a year and a half led companies to raise wages to attract and retain staff. Household income increased 0.4% against 0.7% in the previous month.

According to data also published on Friday by the Department of Commerce, orders for durable goods, such as cars or electronic devices, fell 2.1% in November, after several months of increases.

Said Rubeela Farooqi, HFE’s chief cabinet economist for the United States, “Data point to less investment momentum, but capital spending remains positive for now. This moderation is likely to continue as demand shifts away from goods to services due to the rise in interest rates”.

However, says Shepherdson excluding the transport sector, orders increased 0.2%. This “largely reflects a drop in civil aircraft orders.”

Consumption, the lung of the largest economy in the world, has remained strong so far, allowing PIB to rebound after 2 quarters of contraction.

Third-quarter PIB growth was even stronger than initially announced, at 3.2% annualized rather than 2.6% as initially estimated, according to the third and latest estimate released Thursday by the Commerce Department.

Another inflation gauge, the IPC index, by which pensions are indexed, released last week, also slowed sharply in November, to 7.1% from 7.7%.This data was published last week, at the same time that the Fed was deliberating to attend to the evolution of inflation.

The entity warned that it is not yet the time to stop. The Fed raised interest rates by a half point, slightly less than in previous months, but much more than the usual quarter point.

Before easing its monetary policy, the Fed wants to be sure that it has won its battle against inflation.

In addition, the entity was slightly less optimistic than in September about the rise in prices, anticipating 5.6% for 2022 -when it expected 5.4% three months ago- and 3.1% in 2023, compared to 2 .8% previous.

Published by The Tampa Herald, news and information agency.

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