As the U.S. nears the halfway point of 2023, inflation is improving, but the economy’s direction is still somewhat uncertain, with new technology influencing economic growth and foreign influence.
Key Details
- Deloitte’s weekly economic update revealed that the economy is still a mixed bag, with some positive news about inflation as interest rates remain stable.
- Consumer price inflation is slowing quickly, bringing down prices like energy, but food prices continue to grow.
- As analysts watch the current state of the economy, many are beginning to wonder whether or not the advent of artificial intelligence (AI) will affect economic growth.
- Meanwhile, China’s declining economy could start to affect U.S. economic policy as the Biden administration continues to push incentives for manufacturing and development in the states.
Why it’s news
Inflation is on its way down after more than a year of oppressive numbers. However, prices across the U.S. are generally still elevated. Consumer prices were up 4% in May, according to the Consumer Price Index (CPI). While this is lower than the 9.1% peak in June of last year, higher prices are still a problem for consumers.
Prices are increasing slower, with just a 0.1% increase from last month. The slower increases indicate that inflation is trending toward a more desirable level. Even so, consumer prices remain high. The cost of energy is one exception. In May, energy prices declined 11.7% compared to the year before. However, food prices are still rising.
Core prices on consumer items are still up 5.3% compared to last year, however, the core prices increased at the lowest rate since November 2021, Deloitte found.
There are new factors for analysts to take into consideration when analyzing the economy. Generative AI technology is an unknown factor, with some claiming it will stimulate the economy and others arguing that it will slow it.
Outside the U.S., China’s economic citation is something economists are watching closely. Recently released data from China’s May economic performance shows some signs of weakness, according to Deloitte. Overall growth, including retail sales and industrial production, was below economic growth predictions.
At the same time, housing projects have declined while youth unemployment is rising. Exports are also lower than last year. These signs of economic weakness explain the country’s current trend of easing its monetary policy.
Backing Up a Bit
During previous technological leaps, a significant amount of time had passed before the technology resulted in strong economic growth. However, this was because businesses and workers had to take time to learn the new technology. AI may not have the same problem. While there is a learning curve with AI, many workers already have the skills needed to wield the new tools.
As AI increases productivity across industries, economic growth may be accelerated. But as Deloitte’s Chief Global Economist Ira Kalish points out, efficiency does not always lead to economic growth.
Notable quote
“When I return home from an overseas trip, I no longer need to wait to speak with an immigration official who would examine my passport,” Kalish says. “Rather, I go to an electronic kiosk that recognizes my face and, within seconds, welcomes me home and tells me to go forward. This is a productivity gain in that a task is accomplished more quickly and with less labor than previously.” Kalish explains that while such technology is in use, major economies that use this technology are still growing slowly.
