Inflation Keeps Cooling

Inflation has come down from its historic highs, though not far enough to stop plaguing the economy just yet.

That’s the takeaway from data released yesterday. First, the good news: Prices rose at their slowest pace in nearly two years, having climbed 5 percent in the 12 months that ended in March. The increase is still higher than the 2 percent annual rate that policymakers seek to keep the economy humming — but is down from a peak of 9 percent last summer.

The bad news is that other measures — particularly indicators that exclude food and energy prices, which are known as core inflation — tell a more mixed story. In the chart below, you can see that core inflation is more stable than overall inflation and, for that reason, is less prone to misinterpretation.

“We’re past peak inflation,” said my colleague Jeanna Smialek, who covers the Federal Reserve, America’s central bank. “But inflation is still pretty stubborn.”

The mixed news suggests that the Fed’s recent moves have worked to tame inflation, but that more action is needed to get price increases down to sustainable levels. Today’s newsletter will break down the data and what the Fed might do next.

Mixed picture

There is an underlying story behind the numbers, starting a few years ago. Flush with money from Covid relief legislation and stuck at home during the pandemic, Americans bought more things they could use in their homes. So prices for goods — physical stuff like furniture and appliances — increased sharply over 2021.

As the economy has recovered from the Covid shock and people have started to go out again, consumer demand is shifting to services — things you pay people to do, like make food for you at a restaurant or fly you across the country. Prices are rising accordingly, particularly across airlines, transportation and restaurants, as you can see in this chart:

That trend is what policymakers are looking at now. It suggests consumer demand is still too high — first chasing limited goods and now chasing limited services, leading to increases in prices.

There are some good signs for the prospect that inflation will fall further. The flood of cash that people got from the government during the pandemic is drying up, reducing consumer demand. The supply chain has largely untangled itself from the snarls of the earlier Covid days. The shock to oil and gas prices from Russia’s invasion of Ukraine has eased. The Federal Reserve, in an effort to further restrain demand, has increased interest rates to make borrowing money more expensive.

But there are also some potentially bad signs. American consumers are still spending a lot, taking advantage of higher wages and savings accumulated during the pandemic. The cartel of oil-producing countries, OPEC, is cutting its production to try to raise prices. The longer inflation persists, the more likely it is to become ingrained in the economy — making it more difficult to bring down further. “It’s not that inflation is going to take back off and spike again, but that we might not be able to fully stamp out what remains of it,” Jeanna said.

What’s next

Going forward, policymakers will probably try to take a balanced approach to match the mixed story. The Federal Reserve is likely to take more measured steps than it did last year. The central bank regularly increased rates by half a point or more for much of 2022, but it adopted a smaller quarter-point increase last month and is widely expected to repeat that step at its next meeting in May.

There is a risk that the Fed does too little and inflation persists, as happened in 2021. But there is also a risk that the Fed goes too far and does unnecessary damage to the economy, as this newsletter has explained before. A strong economy can lead to faster price increases. But a weak economy can put a lot of people out of work. Policymakers are trying to find a sweet spot between those two extremes.

The latest inflation data suggests that the country is getting there — that an end to rapidly rising prices is perhaps becoming visible now. But the data is not clear enough to rule out a mirage.

More business news

The Biden administration wants most new cars to be electric by 2032. (Related: How good for the planet is that big electric pickup?)

China is pioneering batteries that use sodium, which could transform the industry.

NPR will stop using Twitter after the social network labeled it “U.S. state-affiliated media.”

Juul announced a $462 million settlement with states over the marketing of e-cigarettes to adolescents.

Morale at Meta, Facebook’s parent company, is low, because of layoffs and concerns over Mark Zuckerberg’s vision.


Abortion Pill

A federal appeals court said an abortion drug could temporarily remain available, but the judges blocked it from being mailed to patients.

Overseas pharmacies are selling abortion pills to U.S. patients, and they stand to profit if the legal challenge succeeds.

War in Ukraine

A new batch of leaked U.S. documents shows the breadth of Russian government infighting and the reach of American spy agencies into Russian intelligence.

Ukraine is pursuing a costly strategy to hold on to its shrinking corner of Bakhmut, even as allies question its rationale.


Justin Pearson, the ousted Tennessee representative, will return to the state legislature with unanimous backing from Shelby County officials.

Beyond Tennessee, single parties control many state legislatures, meaning lawmakers face few consequences for their conduct.

Senator Dianne Feinstein has asked to step away from the Judiciary Committee while she recuperates from shingles.

Federal investigators are asking witnesses whether Donald Trump showed off a map he took with him when he left office that contains sensitive intelligence information.

Montana is close to outlawing TikTok, though officials acknowledged that a ban would be technologically tricky to enforce.

In a decision with national implications, Oklahoma is considering whether to approve the nation’s first religious charter school.

Other Big Stories

Prince Harry will attend King Charles’s coronation in London next month without his wife, Meghan, or their children.

When Cornell’s student assembly voted to require faculty to alert students about potentially upsetting educational materials, administrators pushed back.

More than a foot of rain drenched Fort Lauderdale in Florida, shutting the airport.


Lyndon Johnson was more of an antagonist to Martin Luther King Jr. than has been portrayed, Jonathan Eig and Jeanne Theoharis write.

Compulsory substance abuse treatment has its critics, but it can save lives, David Sheff argues.


First Monday in May: What we know so far about the Met Gala.

Textbook mistake: The publisher was not smarter than a fifth grader.

Industry recruitment: She helps people of color find their footing in the arts.

Tiny love stories: Failed first dates and more tales of romance.

Flexibility test: Can you touch your toes?

Advice from Wirecutter: The best mouse for gaming.

Lives Lived: Anne Perry was well into her career as a best-selling crime writer when her own murderous past was dramatized in a 1994 movie. She died at 84.


N.B.A. eliminations: The Chicago Bulls knocked the Toronto Raptors out of the postseason and the Oklahoma City Thunder ousted the New Orleans Pelicans.

Position switch: Bryce Harper, the baseball star, is still recovering from elbow surgery, but he has come up with a creative solution: a move to first base for the Philadelphia Phillies.

Jeff Bezos steps aside: The Washington Commanders will have a new owner at some point, but it won’t be the Amazon founder. Bezos has officially taken his wallet and gone home.

Jarred Kelenic arrives: Watch his 482-foot home run at Wrigley Field yesterday.


Reconsidering history

In 1993, federal agents stormed a compound that was home to an armed religious sect, known as the Branch Davidians, outside Waco, Texas. The raid culminated in an inferno, broadcast on live television, in which 76 Davidians died, a third of them children.

Three decades later, Americans are still divided on what happened, Chris Vognar writes in The Times: Was Waco an inexcusable episode of government overreach or the outcome of a dangerous cult’s fanaticism?

Two new shows — “Waco: The Aftermath” on Showtime and “Waco: American Apocalypse,” a Netflix documentary series — are taking a second look. “We really wanted to explore the idea that maybe this didn’t happen because someone was evil,” said John Erick Dowdle, a creator of the drama, “but because humans are fallible and communication is difficult.”


What to Cook

This ragù is unapologetically lamb-forward.

What to Read

“Minor Notes, Volume 1” is part of a series that aims to amplify the voices of lesser-known Black poets.

What to Listen to

The Times podcast “The Run-Up” investigates what Democrats’ change in the party’s primaries says about President Biden’s grip on power.

Late Night

“He is not a stable genius”: Jimmy Kimmel mocked Trump’s interview with Tucker Carlson.

Now Time to Play

The Times is introducing a new feature: Spelling Bee Buddy. It can help you solve the Bee when you get stuck, and analyze your play.

The pangram from yesterday’s Spelling Bee was expunging. Here is today’s puzzle.

Here’s today’s Mini Crossword, and a clue: “What a shame!” (four letters).

And here’s today’s Wordle.

Thanks for spending part of your morning with The Times. See you tomorrow. — German

P.S. The Times is inviting illustrators to share work with newsroom art directors. Apply by June 16.

Here’s today’s front page.

“The Daily” is about the leaked documents.

Sign up here to get this newsletter in your inbox. Reach our team at [email protected].

Source: Read Full Article