An economic calm before the storm? – The Economist

by | Jan 16, 2023 | Financial

IN ECONOMICS AS in pole-vaulting, a soft landing is preferable to a hard one. Most recently America’s finance wonks have been using the term to refer to a slow easing of demand and price pressures, partly as a result of increases in interest rates. (A recession, in contrast, would constitute a hard landing.) Such is the desire of the Federal Reserve, which since March 2022 has raised its benchmark rate from between zero and 0.25% to between 4.25 and 4.5%. Yet the inflation rate stayed stubbornly high for much of last year.Recent data from America’s Bureau of Labour Statistics have fuelled optimism among those hoping to avoid a painful landing. They show that inflation is slowing. From November to December 2022, prices for all goods fell by 0.1%. Compared with December 2021, prices increased by 6.5%, the smallest 12-month rise since October 2021. Removing the volatile cost of food and energy from the index, prices increased by 5.7% over the past year. The three-month “core” inflation rate was 3.1% when annualised, still too high for the Fed but clearly moving in the right direction (in mid-2022 annualised core inflation was nearly 8%).Another marker is a stable unemployment rate. On this measure, there was more good …

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