Inflation Continues To Moderate

(KNSI) – Tuesday’s Consumer Price Index figure came in below expectations, increasing by 7.1% from last November. The monthly increase was 0.1%.

Saint Cloud State University Economics Professor King Banaian says the figures are good news, particularly regarding used cars and real estate, but the recent moderation may not be sustainable for goods and oil prices because of pent-up Chinese demand.

“The upcoming Chinese New Year celebrations that usually happen in late January are going to now happen in a way that they haven’t happened for three years. So there’s going to be a massive increase in consumption, which should drive up oil prices and gas prices. We may be close to the bottom in the gas prices that we’re paying at the pump.”

The country is adapting its “zero COVID” policy, which consisted of lockdowns and other strict curbs on economic activity. Weighing everything, Banaian says the peak in CPI is probably in. Inflation was over 9% in June.

One area that is proving sticky is the price of services, which amount to about 2/3rds of the American economy. Banaian says wage inflation hits hardest in the sector because most service activities require human beings to be involved.

“You can get automated burger flippers and you can imagine a fully automated restaurant, I suppose. But it’s hard to imagine automation solving the problem of flying your plane or fixing your car.”

Wage growth has been between four and six percent recently. The Federal Reserve has been trying to curb it by slowing down the economy with interest rate hikes that lead to less labor demand from businesses.

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