To what extent is inflation in the US higher than normal? Is inflation stabilizing and what are the current trends?
Price Indexes and Their Role in GDP
Price indexes in the U.S. GDP structure are very different from consumer inflation, as the prices of fixed investment, exports, imports, or government consumption may have different trends compared to the consumer price index. Taken together, the price indexes determine the GDP deflator - how nominal GDP is converted into real GDP.
Three Distinct Periods of Analysis
Three periods can be distinguished as the average quarterly rate of change of price indices in % relative to the previous quarter:
- From 2010 to 2019 to COVID, as a notional norm, and the earlier period is not meaningful to consider because of the irrelevant structure of the economy.
- From 2021 to 2022 (8 quarters), although the period of inflationary shock lasted from April 2021 to June 2022, but structurally very different as goods were the first to catch the inflationary shock and services the last.
- Actual reality in 2023 for three quarters and separately the third quarter of 2023.
It came out as follows (negative values in parentheses):
- GDP deflator: 0.41 -> 1.54 -> 0.75 -> 0.87%.
- Final Consumption Expenditure (PCE): 0.37 -> 1.44 -> 0.79 -> 0.72%.
- Inflation in consumer goods: 0.00 -> 1.73 -> 0.15 -> 0.21%.
- Inflation in consumer services: 0.55 -> 1.29 -> 1.11 -> 0.98%.
- Price index in fixed capital investment: 0.25 -> 1.58 -> 0.51 -> 0.48%.
- Export prices: 0.20 -> 2.26 -> 0.01 -> 0.99%.
- Import prices: (0.04) -> 1.57 -> (0.51) -> 0.03%.
- Government consumption and investment: 0.48 -> 1.55 -> 0.40 -> 1.10%.
Conclusion
It turns out that yes, indeed, inflation in 2023 has slowed down twice relative to 2021 - 2022, but at the same time it is 1.7 - 2 times higher than the norm 2010 - 2019. Consumer inflation in goods has tapered off, but in services is twice the allowed rate (at the expense of housing).
Prices in fixed capital investment are also twice as high as the norm, and for government consumption within the permissible limits. However, there is an increase in inflationary pressure in 3Q 2023 in government consumption.