The Bureau of Labor Statistics (BLS) released the Consumer Price Index update for November this morning. The index increased 7.1% from November 2021 to November 2022. This year-over-year increase is down from the 7.8% rate from registered from October 2021 to October 2022.
On a monthly basis, from October to November of this year the index increased by 0.1%, which translates to an annualized rate of about 1.2%. This month-to-month increase is the second lowest increase since January 2021.
While the year-to-year increase remains well above the Federal Reserve's target rate of 2%, the low annualized month-to-month increase is below this target. While monthly inflation rates are volatile, the recent string of lower monthly inflation rates suggests that inflation has truly peaked and is on its way down. Financial markets have responded positively to this news.
Figure 1 illustrates how prices, wages, and inflation-adjusted wages have changed from January 2021 to November 2022. Wage increases have kept pace with or have exceeded price increases since the summer months, indicating that workers are finally seeing at least some small increases in their purchasing power. Still, in inflation-adjusted terms, wages are 3.6% lower than they were in January 2021.
Figure 2 presents the year-over-year inflation rate, the annualized month-to-month inflation rate, and the Federal Reserve's 2% inflation target. Since January 2021, the highest year-over-year inflation rate was June's 9% rate and these rates have declined in subsequent months. The monthly inflation rates, annualized, are much more volatile than the year-over-year rates, but these monthly rates have been lower starting in mid-summer. From July to November, the annualized monthly inflation rates have averaged 2.5%, or just 0.5% above the inflation target. This suggests that inflation has indeed peaked, and the year-over-year measures will continue to come down as recent low-inflation months replace older high-inflation months in the year-over-year calculation.
The Fed is trying to navigate a so-called 'soft landing' by trying to reduce inflation while averting a recession. The coming months will be telling as we see whether inflation continues its downward trend and the labor market remains strong.
On a monthly basis, from October to November of this year the index increased by 0.1%, which translates to an annualized rate of about 1.2%. This month-to-month increase is the second lowest increase since January 2021.
While the year-to-year increase remains well above the Federal Reserve's target rate of 2%, the low annualized month-to-month increase is below this target. While monthly inflation rates are volatile, the recent string of lower monthly inflation rates suggests that inflation has truly peaked and is on its way down. Financial markets have responded positively to this news.
Figure 1 illustrates how prices, wages, and inflation-adjusted wages have changed from January 2021 to November 2022. Wage increases have kept pace with or have exceeded price increases since the summer months, indicating that workers are finally seeing at least some small increases in their purchasing power. Still, in inflation-adjusted terms, wages are 3.6% lower than they were in January 2021.
Figure 2 presents the year-over-year inflation rate, the annualized month-to-month inflation rate, and the Federal Reserve's 2% inflation target. Since January 2021, the highest year-over-year inflation rate was June's 9% rate and these rates have declined in subsequent months. The monthly inflation rates, annualized, are much more volatile than the year-over-year rates, but these monthly rates have been lower starting in mid-summer. From July to November, the annualized monthly inflation rates have averaged 2.5%, or just 0.5% above the inflation target. This suggests that inflation has indeed peaked, and the year-over-year measures will continue to come down as recent low-inflation months replace older high-inflation months in the year-over-year calculation.
The Fed is trying to navigate a so-called 'soft landing' by trying to reduce inflation while averting a recession. The coming months will be telling as we see whether inflation continues its downward trend and the labor market remains strong.