Lower gas prices provide some relief to inflation-weary consumers
LEILA FADEL, HOST:
We're going to turn now to economist Julia Coronado for the bigger picture. She's the founder of an economic research service, Macropolicy Perspectives. Good morning, Julia. Thanks for being on the program.
JULIA CORONADO: My pleasure. Good morning.
FADEL: So, as I said, I really want to start with the bigger picture here. What do these changes in gas prices actually mean for the overall economy?
CORONADO: Well, they do provide some relief to consumers. So consumers have been getting squeezed lately. Wage growth has been pretty strong, but inflation has been rising a little bit faster. So consumers have been losing ground on purchasing power. So with falling gas prices and potentially some relief on food prices in the pipeline, consumers will have a little bit more money to spend on other goods and services, and that's good for the broader economy.
FADEL: And why do you expect food prices to also start coming down?
CORONADO: Just like with gas prices, some of these global movements we've seen in commodity markets have indicated lower food prices. It takes longer for that to feed through to grocery store prices, but we have seen some relief in those wholesale commodity markets.
FADEL: OK, so good news on gas, possibly good news on food, but there's another big price item for so many people, which is housing, which you have to pay for. What do we expect there?
CORONADO: Right. So we are seeing early stages of a housing correction. We've seen interest rates - the Federal Reserve, which is trying to cool off inflation, has raised interest rates quite substantially. Higher mortgage rates have cooled off housing demand, brought some prices - some pressure on prices. It's still early days. That should filter through to rents over time. This is a longer event. It usually takes time for this to happen. So we're probably looking at relief on rents in next year, really 2023.
FADEL: Now, we also got word yesterday of a dip in annual inflation from 9.1% to 8.5% last month. Does this change the Federal Reserve's plans to possibly continue raising interest rates? Or what would the plans be on interest rates, if that were to continue?
CORONADO: I think what this does is confirm to the Fed that their plan is on track.
CORONADO: So they still have signaled further interest rate increases are coming and that they'll eventually stop somewhere around 3 to 3 1/2%, and that's another percent from here. But that is based on the expectation that their policy will bring inflation down over time, and it seems to be having an effect. So that's good news. It is having an effect. We are seeing inflation cool. That doesn't mean you stop now. It means you go forward with your plan and complete it so that you get to your ultimate goal, which is inflation closer to 2%, not 8%.
FADEL: Now, what does this - all of these things together - what does this tell us about where the economy is headed?
CORONADO: Yeah, so there's been a lot of talk about recession. It is clear from the job market that we're not in a recession now. Recessions usually mean job losses and rising unemployment. We are not there. We actually saw the unemployment rate fall in July. So that's good news. We're not in a recession yet. But with the Fed raising interest rates, with sectors like housing cooling and inflation still running pretty high, it's a delicate balance. So we're at a delicate inflection point. The falling gas prices is good news. It should help the resiliency of the economy. But, you know, we're in a risky moment right now.
FADEL: A risky moment. Now, a lot of the things that we talk about are really short term. When you look at the long view and this delicate balance, what are you thinking, looking for in the economy?
CORONADO: Well, so we've really never seen a job market quite this strong. I am a little bit optimistic that that can carry the day and allow us to stay on track. Even if we go through a soft patch, we can avoid a recession.
FADEL: Economist Julia Coronado with Macropolicy Perspectives. Thank you so much.
CORONADO: My pleasure. Transcript provided by NPR, Copyright NPR.