The Key Takeaways
- Since its peak in 2020, inflation has been subdued, yet prices remain high. This puts pressure on household budgets, and enrages voters.
- Jerome Powell the Federal Reserve chairman acknowledged these economic realities at an event on Wednesday.
- Fed wants to increase prices by 2% a year rather than let them drop.
Top banker of the country has admitted an economic fact that affects the lives of all households in the nation: the inflation rate may have decreased from 2022’s peak, but cost of living continues to increase.
Jerome Powell is the Federal Reserve Chairman, and the official in charge of controlling inflation. He made the observation on Wednesday, at an event sponsored by The New York Times. Powell was asked why the public is unhappy about the economy even though official statistics show it is doing quite well by historical standards.
Powell focused his attention on the disparity between the inflation rate and the cost-of-living. The rate of inflation is how much prices change for everyday items. Inflation of zero percent would be the exact same price. The Fed wants inflation to be 2% annually.
“People are unhappy because the price level is higher,” Powell said “You can tell people that inflation has gone down, which is the change in prices. But that doesn’t matter to people who are paying 10%, 20% more for the important things in their lives.”
What’s the Difference Between These Two Terms?
The inflation rate is now stable, after reaching a high of 9.1% four decades ago in 2022. The prices of most goods continue to increase, though at a slightly slower pace. This makes the central banks happy but not everyone else.
Consumer Price Index has increased by 21,7%, measuring the cost of nearly everything that consumers buy in order to survive.
Individual items have risen even more. The price of eggs is 68% higher than it was in February 2020. Car Insurance increased 51% during the same period.
"The bottom line is that the Fed’s preferred measure of inflation, namely year-over-year inflation, may be back near 2%, but the living costs for households are still dramatically higher than four years ago," Torsten Slok, chief economist at Apollo, wrote in a commentary.
Prices Won't Go Back to What They Were
One survey suggests that the inflationary burst after the pandemic has continued to have an impact on household budgets, even years later.
Even as the inflation rate declines, these prices are expected to remain elevated. Fed’s goal is to ensure that prices continue rising, and not fall. This is because price declines are more common in times of economic crisis, like the Great Depression.
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