Are we still talking about inflation? Yes, we are.
When the government released the November Consumer Price Index (CPI), it showed progress. The headline CPI tumbled to an annualized pace of 3.2 percent, from 3.7% the month prior.
The core rate, which strips out food and energy, edged down to 4%, the smallest increase since September 2021. While those numbers are markedly better than the high print from June 2022 (9.1%), the rate of inflation has not yet returned to pre-pandemic levels.
As a refresher, it was just about two years ago, that critics of the Federal Reserve were squawking that the central bank had to act forcefully to curb inflation.
It took until March 2022 before the Fed began its most aggressive rate hike campaign since the late 1970s. Recently, Bill Dudley, the former president of the New York Federal Reserve, gave the Fed a grade of “D minus” for getting a “really late” start on its anti-inflation campaign.
But after 11 separate actions, which pushed short-term interest rates from zero to 5.25 -5.5%, Dudley notes that Fed officials have “definitely caught up and are either at or pretty close to where they need to be,” which earns them a grade of “A minus.”
That’s not grade inflation (pun intended), rather the upgrade in Dudley’s assessment is due to the fact that Fed actions have helped cool inflation, without pushing the economy into a recession, at least so far. However, because the Fed targets 2% inflation, there is still work to be done. In the parlance of e-commerce, the Fed is now experiencing a so-called “last mile” problem.
Last mile was a phrase that was coined to describe the supply chain process, which starts when your order for an item reaches a warehouse. From there, it quickly travels a great distance. But the last mile to your home can prove expensive and disastrous, especially if something goes awry.
According to research from Capgemini, “the final leg of the journey where a product lands in a consumer’s hands – is now more significant than ever. A superior last-mile experience engages and retains consumers, with our research showing that three-quarters are willing to spend more if they are satisfied with the delivery services.”
For the Fed, consumers may not have liked peak inflation, but as CPI tumbled over the course of a year, they seemed willing to move on. But this “last mile” of progress on inflation, from the current level of 3.2% to the Fed’s desired 2%, is impacting how we feel.
The preliminary reading of the University of Michigan November Sentiment Index showed that inflation expectations are elevated. Consumers are worried that high prices will stick around at least for another year and also over the longer term.
This is worrying to Fed officials, who are monitoring whether those anxieties translate into a change in spending patterns, which at one extreme, could cause a more substantial economic slowdown, as people pull back on spending, and at the other extreme, cause consumers to jump in and buy before prices rise by even more.
When Federal Reserve chair Jay Powell spoke at an IMF event on November 9, he said that Fed officials had a “long way to go” before they will get to 2%. “We know that ongoing progress toward our 2% goal is not assured: inflation has given us a few head fakes.”
Gita Gopinath, the first deputy managing director at the IMF chimed in and said that while economists are pleased that inflation is “headed in the right direction … this mile will likely be the toughest.”
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.