Jan 19, 2025

The news I heard is that there are underlying price pressures in 2024 that were either the same or barely changed from 2023, despite a worsening slowdown in China that reduced demand for commodities and manufactured goods. The U.S. inflation outlook also seems positive, with the U.S. Consumer Price Index (CPI) up just 2.9% over the previous year and the 12-month change in the Personal Consumption Expenditure (PCE) price index likely coming in around 2.5%. Inflation remains about 1 percentage point faster than before the pandemic at a yearly rate, and there are concerns that the relatively benign conditions of the past few years could reverse without any disruptive policy changes in the U.S.

Most of the extra inflation in the U.S. and other rich countries was effectively a policy choice to minimize the financial and economic damage from temporary disruptions to production, distribution, and consumer preferences caused by the pandemic and Russia’s war on Ukraine. The big question is where inflation will settle once the crisis is over, and so far, the evidence seems to support the interpretation that the post-pandemic world would have to be meaningfully different from what came before. Household balance sheets that had been impaired ever since the financial crisis were suddenly infused with cash, allowing richer consumers to accumulate liquid assets as poorer ones stocked up on durables and housing without increasing their indebtedness.

Overall, the news is suggesting that there is stability in many of the inflation numbers over the past couple of years, and the U.S. inflation outlook appears to be positive.

Stay Well!