We may not be able to get away from the word “inflation” as the country is still in the grips of its economic stronghold, but the way the term is being used is changing — and that’s a very good thing.
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As Reuters reported, Federal Reserve chair Jerome Powell used the term “disinflation” at least 15 times in 45 minutes on Feb. 1 as he broadcast the latest report from the central bank. Simply put, the definition of the term means “a drop in the rate of inflation,” which is exactly where the U.S. finds itself now. According to the latest Consumer Price Index for December 2022, inflation is still at 6.5%, but a far cry from the 9.1% peak in June that marked a 40-year high.
The country is still a ways off from the acceptable annual 2% inflation rate that the Fed has set as a benchmark, and until we get there, Powell has said more interest rate increases will come.
Feb. 1 marked the latest rate hike by another quarter point, wavering between 4.5% to 4.75%. But at the very least, the economy now seems on the right track according to the Fed.
This time of disinflation was noted by Powell as a “most welcome” change, though cautioning we are still at an early stage in the process. Powell chalked up the change to less pressure on supply chains, more demand for services and less shortages in goods. Even better, he said, is the fact that “the disinflation that we have seen so far has not come at the expense of a weaker labor market.” The latest jobs report far surpassed expectations with the country adding 570,000 jobs in January — more than the 187,000 that experts forecasted.
It’s important to note that “disinflation” is very different from “deflation,” another term used in economic situations like the one we find ourselves in. Deflation refers to a decline in overall prices, and that can be an issue for a rebounding economy. “Falling prices tend to sap economic strength, as households for instance put off purchases knowing they could get a better deal if they wait, which eats at spending and can in turn deepen price declines further,” according to Reuters.
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The new Consumer Price Index report will be released on Feb. 14, and will indicate the country’s progress in the fight to financially re-stabilize.
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