Has the United States effectively regulated inflation? In the last year, inflation in the U.S. stood at 4.7%, while core inflation was at 3.3%. Over the past 6 months, inflation has been at an annualized rate of 2.6%, and core inflation has been at an annualized rate of 4%.
Due to the substantial amount of data (approximately 200 components detailing inflation), understanding the factors influencing inflation in the US is challenging. This issue needs to be addressed.
Inflation Trends
The trend is consistently downward, with housing (rentals and hotels) accounting for nearly all of the increase in inflation from February through July 2023. Inflation excluding housing is trending below 1% at an annual rate.
Based on trend analysis for the past 6 months, components representing over 47% of the consumer price index exhibit annual inflation rates below 3%, which is considered an acceptable inflation rate.
Components Influencing Inflation
Rates below 2% are observed in 29% of the components making up the CPI, and deflation is seen in 17% of the components. Only housing (hotels and real estate rent) and other types of goods and services present issues (with inflation above 4% on an annualized basis). The price growth for these problematic components is approximately 6.7%, contributing about 3.2% to the CPI structure.
Reviewing the momentum trend over the last three months, the following components show zero inflation dynamics in annual terms when aggregated: food (including beverages and food consumed outside the home), education, medicine, transportation (both goods and services, including fuel), telecommunications, IT services, computers and communications, culture, sports, and the entertainment industry, as well as clothing and footwear.
The mentioned components above make up roughly 62% of the CPI structure, and their inflation rate is approximately zero.
Hence, the current trend suggests that inflation is only present in housing, which carries the greatest weight at 34.7% within the CPI structure, and in other goods and services (around 3.3% within the CPI structure).
Excluding the problematic categories (which constitute 38% of the CPI structure), inflation for the past 6 months is about 0.8% to 0.9% at an annualized rate. Over the last three months, inflation is close to zero.
Rent will likely remain problematic for an extended period due to the significant gap with real estate values.
Conclusion
In conclusion, the trajectory of U.S. inflation reveals a mixed landscape, with recent months showcasing a gradual decline and certain sectors experiencing minimal inflation or even deflation. While the challenge of curbing inflation remains, positive trends in core components of the Consumer Price Index, alongside efforts to address housing-related inflation, suggest that the U.S. is making strides towards inflation control. However, vigilance and proactive measures will be crucial to sustaining this momentum and ensuring the stability of the economy in the face of ongoing uncertainties.