Inflation is Cooling, but the Average Household is Still Struggling

[bjl584]

UBS projects inflation is coming to an end, but that’s ‘little comfort to households,’ chief financial analyst says


PUBLISHED WED, NOV 15 20238:52 AM EST

Jessica Dickler@JDICKLER
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KEY POINTS

• The consumer price index was flat in October, signaling that the prolonged period of high inflation may finally be coming to an end, according to a report by UBS global wealth management.
• However, “the slower pace of inflation is little comfort to households still dealing with the cumulative effect of rising prices,” says Bankrate’s Greg McBride.

Softer-than-expected inflation boosts case for no more rate hikes: Moody’s Analytics’ Mark Zandi

The prolonged period of high inflation may finally be coming to an end, according to an analysis of recent data by UBS global wealth management.

In October, the consumer price index, a closely followed inflation gauge, increased 3.2% from 12 months earlier, down from 3.7% in September, the U.S. Bureau of Labor Statistics said Tuesday.

The report marked a significant improvement on the pandemic-era peak of 9.1% in June 2022.

“By next spring, inflation will have slowed to a comfortable level for both the Fed and investors,” said Solita Marcelli, chief investment officer of the Americas for UBS Wealth Management.

“The slower pace of inflation is little comfort to households still dealing with the cumulative effect of rising prices,” said Greg McBride, Bankrate’s chief financial analyst.

“The strain on household budgets is real.”

47% of adults say monthly expenses exceed income

Consumers have struggled to keep up with high prices and higher interest rates across the board.

Nearly half, or 47%, of adults said their monthly expenses exceed their monthly income, according to a recent report by First National Bank of Omaha,and 62% of adults said they are living paycheck to paycheck, studies also show.

For now, though, cooling inflation could keep the Federal Reserve on the sidelines.

Although Fed Chair Jerome Powell recently said “inflation is still too high,” a move in December “seems highly unlikely,” McBride said. “But stubbornly high core inflation will have the Fed keeping their options open into 2024.”

Altogether, the central bank has raised rates 11 times in a year and a half, pushing its key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years.

However, the Fed is unlikely to be able to claim victory just yet, Marcelli also said.

For consumers, that means there will be no relief from sky-high borrowing costs.

[disneysteve]

So many people don’t understand what inflation is. It isn’t the price increases. It’s the rate of price increases. Just because the inflation rate comes down doesn’t mean prices come down. That would be deflation. Higher prices remain for the most part. They become the new normal and rise from there.

[ua_guy]

Key takeaways:

-Americans were too dependent on credit and low/no borrowing costs before the so-called inflationary crisis

-53% of adults either didn't care to respond to the survey, else it is assumed their expenses don't exceed their monthly income.

-Interest rates on things like cars are not at their historical peaks, but higher prices and extended loan terms are kicking consumers in the teeth. Housing is especially terrible in this equation given the price increases over the years.

-Although important, the cost of housing and energy are still having extremely outsized impacts on the average household budget and don't give a great picture of "inflation" as a whole.

[LivingAlmostLarge]

Inflation coming down doesn't make things cheaper. Just stops it going up so fast.