18 July 2023
Despite recent reports indicating a slowdown in inflation, the battle against soaring prices is far from over, painting a bleak picture for the economy. The consumer price index rose just 0.2% in June, with the annual rate at 3.1%, significantly lower than the peak of 9.1% a year ago. However, there are troubling signs that indicate the underlying challenges. Rising fuel prices and a clogged housing market continue to pose problems. Moreover, core inflation remains high, with a 0.2% increase in June and an annual rate of 4.8%, far beyond the Federal Reserve’s comfort level. Housing costs, a key component, have risen by 7.8% in the past year and show no signs of significant relief.
Long-term analysis reveals that the consumer price index is still up approximately 18% from three years ago, highlighting the enduring impact of inflation on households. Small businesses have been hit hard, grappling with rising costs and higher interest rates imposed by the Fed. This challenging environment dampens growth prospects and adds pricing pressure on inputs, posing significant obstacles to the financing and sustainability of small enterprises.
While there have been some positive developments, such as easing supply chain pressures, they are not enough to alleviate concerns. Excess savings built up during the pandemic are expected to dwindle as consumer demand slows, exerting downward pressure on certain categories. However, the Federal Reserve remains cautious and plans to continue with interest rate hikes. The current inflation rates continue to have a negative impact on consumers, and the road to recovery remains long and uncertain.