Inflation in the United States is improving, and the overall mood remains poor

Inflation in the United States is improving, and the overall mood remains poor

WASHINGTON, Nov 15 (Reuters) – As U.S. families prepare to gather for Thanksgiving dinner next week, food prices have been largely stable for several months, gasoline prices are about 10% lower than they were a year ago, and the average cost of a lot of food… . What goes into your cart has been virtually unchanged for a year.

But the steady decline in inflation has not translated into good news for President Joe Biden or the Federal Reserve when it comes to public opinion. Attitudes toward both have continued to slide in light of one constant fact: things are still more expensive than they were before the coronavirus pandemic, and are likely to stay that way.

“Inflation is going down…but prices are not going down. They are going up at a slower rate,” Fed Governor Christopher Waller said last week when asked at a research conference about common public misconceptions. “What’s on people’s minds now is… prices going back to where they were in 2021. That’s not going to happen. These prices will probably be there forever.”

The White House and the Fed got some good news on Tuesday when the latest inflation data showed that prices overall did not rise between September and October, a rare respite from a steady rise that has cut about 15% of the US dollar’s purchasing power since Biden. He took office in early 2021.

There are also reasons to believe that inflation may continue to decline.

Although increases in housing costs have proven steadier than expected, economists at the Federal Reserve and on Wall Street are confident that a downward shift is coming in a sector that represents a large portion of the consumer price index. Moreover, recent inflation has been driven by service items, such as car insurance and video streaming, which are likely to prove to be one-off adjustments, with insurers, for example, raising premiums to account for previous increases in vehicle prices that have stabilized.

However, Biden’s disapproval rating rose to 56%, according to a Reuters/Ipsos poll in early November, and has exceeded 50% since prices began rising steadily as the economy emerges from the pandemic. Previous polls found that about 60% of respondents disapproved of the Democratic president’s handling of inflation and 56% of his handling of the economy overall, although the results showed a significant partisan tilt. Even with the unemployment rate still low, 46% of participants did not approve of Biden’s management of the labor market, while only 41% approved.

The results were not much better for the Fed. A Gallup poll in September found that a record 25% of respondents gave the central bank a “poor” performance rating. Only 36% said they were doing well or excellent, the worst such reading in a decade.

Reuters graphics

“It’s hard to change”

These findings reinforce a reality that has haunted government officials for decades. And when it comes to basic home economics, the general public’s memory of bad news is slowly diminishing.

For example, through the wild pandemic ride of lockdowns, government stimulus payments and rapidly rising prices, inflation-adjusted incomes as of last September were about 6% higher than they were in January 2020, on the eve of the coronavirus disease 2019 (COVID) outbreak. -19). In other words, the decline in the purchasing power of the dollar was offset by fatter portfolios.

However, polls show continuing doubts about what is to come. Inflation expectations have fallen, according to a New York Fed survey, but are still well above the central bank’s 2% target. The same poll showed that a larger share of people, nearly 31%, expected their financial situation to be worse a year from now compared to the 28% who expected their financial situation to be better.

General optimism was the norm before the pandemic, with “somewhat” and “a lot” responses typically two to four times better off than those who expected things to get worse.

But the mood has turned persistently pessimistic as inflation accelerates – and the shock, for example, of a 20% rise in food prices from March 2021 to 2022, was more resonant than the fact that food costs were virtually unchanged in 2023. .

“Once these attitudes are entrenched, they are difficult to change,” said Jeff Jones, a senior editor at Gallup. “We’ve seen other times where the economy has been bad. Negative ratings are persistent and it takes a very long period of consistently good economic news” to come back.

Shift focus

While Biden faces re-election in just under 12 months, the Fed prides itself on being immune to the influence of elected officials and public sentiment.

After nearly two years when the focus was squarely on inflation, attention may begin to shift if economic data continues the current trend of sluggish inflation and weak job growth.

Both Waller and Fed Governor Lisa Cook noted the overall mood last week in similar comments about expectations for lower prices, something they don’t do often.

Reuters graphics

But if inflation readings continue to show a slowdown, the Fed could focus more on maintaining labor market strength. In fact, after the CPI data was released on Tuesday, investors increased their bets on interest rate cuts starting next spring.

“Since prices will never fall… the only way to win back the hearts and minds of the public is to ensure real incomes rise enough,” Derek Tang, an economist at Monetary Policy Analysts, wrote ahead of Tuesday’s meeting. Data.

“As long as inflation does not pick up again… (the Fed) may choose to ensure that the real side remains healthy enough to generate income growth to allow spending power to catch up.”

Howard Schneider reports. Edited by Dan Burns and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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Covering the US Federal Reserve, monetary policy and economics, he is a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics correspondent and local staff for The Washington Post.

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