Are we really taming inflation ?

Last Tuesday, we got the new measure of inflation in the US for November 2023. I wasn’t impressed by the progress, especially after gasoline dropped so spectacularly this past month. 

So the question is when is our economy finally able to reach the 2% inflation goal set by the Federal Reserve? By the same token, when are interest rates going to unwind from their current 5.4% level down to something more consumer-friendly that also doesn’t cost the nation $800 billion to annually finance its debt? 

Perhaps have we reached the level of diminishing returns? I personally think it’ll be tough to return to that magic 2% of less. For one thing, with the war in Ukraine and Gaza, global energy markets will continue to be disrupted and their prices will remain volatile. 

While some supply chain bottlenecks have eased, geopolitical tensions, like ongoing lock downs and real estate crisis in China could create new disruptions, potentially pushing up prices of goods and services as well as trade wars or protectionist measures that could further disrupt global trade and push inflation up. In the US, our strong labor market, with low unemployment and rising wages, will also keep that upward pressure. 

On the other hand, optimists think inflation will continue its gradual decline towards the 2% target as they hope for continued economic growth and a slow down of geopolitical disruptions, a rosy view I’m not convinced of. Instead, I believe that inflation will remain stubbornly above the target due to the universe of messes of all kind we have to wade through. 

I have not even included into that scenario the increasing costs of all kinds of catastrophe brought in by climate change, but again I am a skier, not an economist!