{"id":13244,"date":"2024-06-28T18:06:05","date_gmt":"2024-06-28T18:06:05","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13244"},"modified":"2024-06-28T18:06:05","modified_gmt":"2024-06-28T18:06:05","slug":"what-easing-inflation-really-means","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/what-easing-inflation-really-means\/","title":{"rendered":"What Easing Inflation Really Means"},"content":{"rendered":"\n

Briar C. from Morgantown, WV asks: <\/em>Hi Mitch, inflation is still a top issue in the U.S. economy today. Are there signs that prices are coming down anywhere? Or should we expect these higher prices to be the new normal? Thank you.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for sending your question, Briar. To answer your question, I think it\u2019s important first to make a distinction between \u201cdisinflation\u201d and \u201cdeflation,\u201d which are two very different things.<\/p>\n\n\n\n

Disinflation is what the Federal Reserve wants to see today, and it\u2019s arguably what the economy needs to arrive in a \u2018soft landing\u2019\/goldilocks state. By definition, disinflation means prices are still growing month-over-month and year-over-year, it\u2019s just happening at a slower pace than previous months and years.1<\/sup><\/p>\n\n\n\n

In May, for instance, the U.S. Labor Department reported that CPI rose 3.3% year-over-year, an improvement from April\u2019s 3.4% print. On a month-over-month basis, prices rose 0.2% in May, which was the lowest monthly reading since July 2023. That\u2019s disinflation, and it\u2019s what the Fed and the markets wanted to see following a hot Q1 2024 for prices.<\/p>\n\n\n\n

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May\u2019s CPI report also showed other signs of improvement in the inflation picture. The CPI report looks at dozens of different categories of spending and prices, and we saw the breadth of rising prices get narrower. Across the CPI, 47% of components were rising at a pace below 4% year-over-year, which was an improvement from 41% in April.<\/p>\n\n\n\n

With this understanding of disinflation, the answer to the second part of your question is yes\u2014you should expect prices at current levels to be the \u2018new normal.\u2019 Prices across the economy have reset to higher levels, and in the future, we want to see prices continue moving higher, albeit at a modest 2% to 3% annual pace. Modest inflation can be viewed as good for the economy, as it promotes spending growth, wage growth, and investment.<\/p>\n\n\n\n

Deflation, on the other hand, is very different. That\u2019s when prices are falling from period to period, which can be a sign of trouble in the economy. If consumers expect prices to come down in the future, they may choose to spend less today\u2014which means sapping the main engine of the U.S. economy. If consumers are spending less, corporations may respond by slowing production, laying off workers, investing less, reducing wages, etc. That\u2019s not what we want to see.<\/p>\n\n\n\n

There were signs of deflation in the latest CPI report, with the \u201csupercore services index\u201d\u2014which excludes shelter prices\u2014falling slightly from April. This was the first time that\u2019s occurred in over two years. This is just one data point, however, and there are few signs that deflation is taking hold anywhere.<\/p>\n\n\n\n

On a high level, I think we\u2019re getting closer and closer to a time when inflation settles back near the Fed\u2019s target, which again means that prices will keep rising from where they are now\u2014just at a slower overall pace.<\/p>\n\n\n\n

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If you have $500,000 or more to invest and want to get answers to the questions above, click on the link below to download this guide today!<\/p>\n","protected":false},"excerpt":{"rendered":"

When economists say inflation is easing, it doesn’t mean prices are falling. Mitch discusses the distinction between “disinflation” and “deflation.”<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-13244","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13244","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13244"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13244\/revisions"}],"predecessor-version":[{"id":13246,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13244\/revisions\/13246"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13244"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13244"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13244"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}