Here’s why President Biden is still optimistic about the US economy despite white-hot inflation of 8.3% in August

'Prices have been essentially flat': Here's why President Biden is still optimistic about the US economy despite white-hot inflation of 8.3% in August

‘Prices have been essentially flat’: Here’s why President Biden is still optimistic about the US economy despite white-hot inflation of 8.3% in August

Raging inflation continues to cast a heavy shadow over the stock market. In fact, on Tuesday — when the latest inflation report came in hotter than expected — the Dow, the S&P 500 and the Nasdaq Composite all suffered their worst daily drop since June 2020.

But President Joe Biden remains optimistic about getting prices under control.

“Today’s data show more progress in bringing global inflation down in the U.S. economy. Overall, prices have been essentially flat in our country these last two months: that is welcome news for American families, with more work still to do,” he said in a statement on Tuesday.

“It will take more time and resolve to bring inflation down, which is why we passed the Inflation Reduction Act to lower the cost of healthcare, prescription drugs and energy. And my economic plan is showing that, as we bring prices down, we are creating good paying jobs and bringing manufacturing back to America.”

The stock market’s bearish reaction suggests investors don’t necessarily share the president’s optimism. And concerns remain that if rampant inflation persists, it could only lead to more rate hikes from the Fed.

Still, some signs indicate that Biden has solid reasons for being optimistic.

Month-over-month comparisons

The Bureau of Labor Statistics reported on Sept. 13 that in August, the consumer price index in the U.S. rose 8.3% from a year ago.

It’s not a pretty picture, and the number came in higher than expected. Economists were projecting an 8% year-over-year increase in consumer prices.

However, from a month-over-month perspective, the increase in CPI was just 0.1% from July.

And July’s number was flat compared to the previous month. Which means, as Biden pointed out, prices “have been essentially flat” for two months in a row.

Gas prices

One of the things that was driving up inflation over the summer was soaring energy prices, and particularly the rising cost of gasoline.

But now, that trend seems to be reversing. In August, the energy index fell 5.0% month over month, led by a 10.6% drop in the gasoline index.

Biden highlighted this sharp pullback in his statement, pointing out that gas prices are down significantly compared to the beginning of the summer.

According to motoring and leisure travel membership giant AAA, the average price of regular gas in the U.S. now sits at $3.703 per gallon — about $1.03 down from its peak of $5.016 per gallon in mid-June.

Grocery prices

While you can limit your exposure to gasoline prices by not driving as much, everyone needs to eat. Which means there’s no hiding from food price inflation.

Fortunately, there’s some hope on the horizon for this category as well.

The CPI report showed that in August, the index for food at home rose 0.7% from the preceding month. While that’s still an increase, it was significantly more modest compared to increases in July (1.3%), June (1.0%) and May (1.4%).

Real wages

Inflation erodes the purchasing power of money. That’s why even though the labor market has been tight — meaning nominal wages should be on the rise — many consumers still find it difficult to keep up with the higher costs of living.

The good news is that real wages, meaning wages adjusted for inflation, are increasing.

In a separate report on Sept. 13, the Bureau of Labor Statistics showed that real average hourly earnings for all employees rose 0.2% from July to August, following a 0.6% gain from June to July.

Biden said that the increase in real wages for two straight months should give “hard-working families a little breathing room.”

Still, it’s not all sunshine and rainbows. Despite recent sequential improvements, real average hourly earnings are still down 2.8% compared to a year ago.

What to read next

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Source: https://finance.yahoo.com/news/prices-essentially-flat-heres-why-100000425.html