Major economists are beginning to make far-reaching and optimistic predictions about inflation.
- As we previously reported, October’s Consumer Price Index (CPI) number came in much more improved than expected. Inflation is still high at 7.7% but still down from its peak in June at 9.1%.
- Economists are beginning to offer optimistic predictions and argue that inflation may continue to reduce over the coming months.
- University of Michigan economist Justin Wolfers is regarded as one of the most influential economists and he agrees that the “decline in inflation is now becoming clearer.”
- He says that four things point to this—decreased tensions from the Ukraine War, easing supply-chain issues, slower rates of medical service inflation, and moderating rent prices.
Why it’s News
“This is a very encouraging inflation report. There’s a good chance that inflation has peaked, and is now turning down,” says Wolfers.
The Federal Reserve is predicting a long and slow progression until it reaches its desired target of 2% annual inflation—with a median rate of 3.1% in 2023 and 2.3% in 2024, Fortune reports. This would suggest that the Fed will continue keeping interest rates bullishly high for the duration of the next two years.
The positive news means that new hikes may begin to slow down before or after the Fed’s planned 50 basis-point hike in December. Wolfers writes that the current CPI numbers forecast that the economy is moving in the right direction to hit the Fed’s projections.
“Should that happen, inflation may even ‘recede from the public view,’ Wolfers noted, adding that it might even be remembered as the transitory’ and temporary phenomenon officials including Fed Chair Jerome Powell and Treasury Secretary Janet Yellen promised it would be last year, even if it took longer to dissipate than first thought,” says Fortune.
New York Times economist Paul Krugman similarly noted that the drop in rental rates is a good sign. “Like Wolfers, Krugman wrote that changes in rental prices could take time to filter into the economy, but the recent slowdown in rental prices suggests underlying inflation could soon be coming ‘under control,’” says Fortune.