Inflation appears to be on the decline. Now what? Expert weighs in
Jun 16, 2023, 8:30 PM
A study by Bankrate has found the average American needs to make $233,000 a year to feel financially comfortable. Photo: Getty Images
SALT LAKE CITY — At long last, inflation appears to be on the decline.
In June 2022, the nation was facing a 9.1% annual inflation rate. One year later, that number is 4%. This comes after the Federal Reserve has previously bumped interest rates.
Phil Dean, chief economist and public senior research fellow at Kem C. Gardner Policy Institute, puts it in simple terms.
“So, things people finance,” he said. “You think a car, you think a house, you think business equipment. As interest rates go up that makes them more expensive, so people buy less. And so essentially when you have inflation, you have an overheated economy.”
He says by increasing interest rates, the Federal Reserve was trying to reduce that “overheated economy.”
Dean uses an analogy of driving on the freeway to further illustrate his point.
“An overheated economy is like driving down the freeway at 100 miles per hour,” he said. “You want to put on the brakes and get back to the speed limit. You don’t want to put on the brakes so hard, you end up going 20 miles per hour on the freeway because that’s also going to create problems.”
He says the Federal Reserve is trying slow the pace of economic growth in order to prevent the economy from becoming overheated.
“Is a 4% per year inflation rate good news?” asked KSL News Radio’s Greg Skordas. “I mean is that something we strive for or is that just a number better than 9 percent?”
Dean says the Federal Reserve uses a different inflation measure that takes out food and energy. He says their goal for that is a 2% rate.
“So, we’re definitely getting closer to that,” he said. “But we’re not all the way back to that quite yet.”
Dean says there will be a lag in time before the decline inflation is felt in the wallet of the consumer.
And while things may be heading in the right direction, Dean says the Federal Reserve may not quite be finished yet.
“My own personal view, I think we probably still have some rate increases left to go,” he said.
Listen to the entire segment.
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Read more:
- Mostly thanks to dropping gas pump prices, inflation rate falls to lowest in two years
- US inflation cooled significantly in May — but it’s still not where the Fed wants it
- Why is inflation cooling — and why isn’t it coming down more
