The inflation rate in the United States fell more than expected in November and reached 7.1 percent year-on-year Code List

Customers in a New York supermarket (Reuters)

The year-on-year rate of inflation in USA continues to drop and in November stood at the 7.1%six tenths below that of October according to data published today by the Bureau of Labor Statistics.

In monthly terms, consumer prices only rose one tenth in Novembercompared to 0.4% in October, according to this statistic that is published one day before the Federal Reserve decides, predictably, to raise interest rates again.

The government report on Tuesday showed that inflation in November was slowed by cheaper gasoline, electricity and used cars, among other elements.

After the report was released, the dollar falls against the euro close to 1%, and also losing ground against the pound and the yen, given the possibility that the Federal Reserve will opt for slower rate hikes. Meanwhile, the wall street stock market it opened with strong increases of around 2 percent in its main indicators.

But even with the new easing of inflation, The Federal Reserve plans to continue raising benchmark rates for the seventh time this year., a move that will further increase the costs of borrowing for consumers and businesses. Economists have warned that if it continues to tighten credit to fight inflation, the Federal Reserve is likely to cause a recession next year.

Several trends have begun to ease price pressures, although they probably won’t be enough to bring headline inflation back to the levels Americans are used to anytime soon.

The national average for a gallon of regular gasoline is down from $5 in June to $3.26 on Monday. Many supply chains have also relaxed, helping to reduce the costs of imported goods and spare parts. The prices of lumber, copper, wheat and other raw materials have continued to fall, which often translates into lower construction and food costs.

Fuel prices have fallen considerably from the June peak (Reuters/file)
Fuel prices have fallen considerably from the June peak (Reuters/file)

To some economists and Fed officials, those numbers are a sign of improvement, although inflation remains well above the central bank’s annual target of 2% and may not reach it until 2024.

Fed Chairman Jerome Powell has said he is tracking price developments in three different categories to better understand the likely path of inflation: Goods, which excludes the volatile costs of food and energy; housing, which includes rents and the cost of home ownership; and services that do not include housing, such as auto insurance, pet services, and education.

In a speech in Washington two weeks ago, Powell noted that some progress had been made in moderating inflation in goods and housing, but not in most services. Physical goods like used cars, furniture, clothing, and appliances have gotten cheaper since the summer.

Used car prices, which soared 45% in June 2021 compared to a year earlier, have been down for most of this year.

Housing costs, which make up almost a third of the consumer price index, continue to rise. But real-time measures of apartment rentals and house prices are starting to fall after experiencing skyrocketing prices at the height of the pandemic. Powell said those drops will likely show up in government data next year and should help bring headline inflation down.

Even so, the costs of the service are likely to remain stubbornly high, Powell suggested. In part, this is because sharp wage increases are becoming a key driver of inflation. Service businesses, such as hotels and restaurants, are labor intensive. And with average wages growing at a rate of 5-6% per year, price pressures continue to mount in that sector of the economy.

Service companies tend to pass some of their higher labor costs on to their customers by charging them more, which perpetuates inflation. Higher wages also spur consumer spending, allowing companies to raise prices.

“We want wages to rise strongly,” Powell said, “but they have to get to a level that is consistent with 2% inflation over time.”

(With information from EFE and AP)

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