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Inflation Has Come Down, But High Prices Are Here to Stay

This is a syndicated repost published with the permission of Statista | Infographics. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

While progress in the fight against inflation has stalled in the past 12 months, the inflation rate has come down significantly from its peak in June 2022. Looking at the steep decline of the inflation rate since then and hearing the talk about inflation cooling, a lot of people are probably thinking: “Great, inflation has come down, but when are prices going back to normal?”

Whenever we’re discussing inflation coming down, it’s important to distinguish between disinflation and deflation. What we’ve seen over the past two years and hope to see more of is disinflation, i.e. a deceleration of price increases (yes, increases) or, mathematically speaking, a negative second derivative of consumer prices. For the overall price level to actually come down, the first derivative, i.e. the inflation rate itself would have to drop below zero, which would signify deflation. While the Fed desperately wants inflation to decelerate, it is aiming for 2 percent inflation, not deflation, because the latter creates a whole set of problems on its own.

As the following chart shows, the rate of inflation (yellow line) has come down quite a bit from its June 2022 peak of 9.0 percent. Consumer prices (blue line) continue to climb, however, and are now 21 percent higher than they were in January 2020, just before the start of the Covid-19 pandemic. So while some prices will or have already come back down from their peaks as supply chain disruptions ease and global crises recede, prices will continue to rise at the aggregate level, albeit hopefully at a slower rate.

This chart shows the Consumer Price Index for All Urban Consumers in the United States.

Consumer Price Index

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