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Inflation eases thanks to falling gasoline prices

JUANA SUMMERS, HOST:

Inflation eased a bit last month. Used cars got cheaper, and so did the gasoline used to power them. Annual inflation overall in November was the lowest it's been in 11 months. President Biden told reporters at the White House today that while the cost of living is still too high, it's moving in the right direction.

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PRESIDENT JOE BIDEN: Prices of things like televisions and toys are going down. It's good news for the holiday season. Used car prices fell for the fifth month in a row. New car prices didn't go up this month. That savings is critical to so many families.

SUMMERS: Today's inflation report comes as the Federal Reserve is weighing another hike in interest rates. And NPR's Scott Horsley joins us now. Hey there.

SCOTT HORSLEY, BYLINE: Hi, Juana.

SUMMERS: So, Scott, this report was a bit better than forecasters had expected. So tell us. What is moving the needle on inflation?

HORSLEY: Well, you mentioned gasoline prices. They've been falling sharply. The average price of the pump dropped about $0.25 a gallon over the course of November. And it's continued to fall since then. We also saw a drop in a lot of travel-related prices - things like airfares, hotel rooms, rental cars. Economist Julia Coronado, who's with MacroPolicy Perspective, says that's a sign that the era of revenge travel, when people would pay any price just to get out after the pandemic lockdowns, is coming to an end.

JULIA CORONADO: It's not like, I'm going to take a vacation no matter what. It's, you know, if I don't get the deal I want, I'll postpone or take a different trip or drive instead of fly. These marginal decisions that consumers used to make and normally make when they're budget-conscious they're starting to make again.

HORSLEY: And when shoppers start to make those choices, businesses can no longer raise prices at will. And that's when you start to see inflation come down.

SUMMERS: But, Scott, overall, inflation is still high, right?

HORSLEY: It is, yeah. Overall, prices in November were up 7.1% from a year ago. Now, that's a lower annual rate than we've seen since the end of last year, but it's a lot higher than we were used to back before the pandemic. And grocery prices are up. Rents are still climbing. Overall, the price of goods has been moderating, and it looks like the worst of rental inflation is probably behind us. But the big concern now is the price of services. Things like haircuts and dry cleaning saw pretty big price increases last month, and that's largely driven by wages. And with the job market still tight, those prices could take a while to level off or even come down.

SUMMERS: Inflation watchdogs at the Federal Reserve are meeting this week. So I'm curious. Do you have any sense of what they might do given the news in this report?

HORSLEY: They're probably going to stay the course and raise interest rates tomorrow. That would be the seventh increase in nine months. It is expected to be a smaller rate hike this time than the last four, just half a percentage point instead of three-quarters of a point. But the central bank has made it pretty clear that borrowing costs are going to keep rising and stay up for a while until prices are back under control. Coronado says, at 7.1%, inflation is still way above the Fed's target even if today's report was somewhat better than expected.

CORONADO: All of the signs look very promising. I don't think the Fed is done. I don't think this means that they're going to declare victory. The annual rate of inflation is still very high, and they're going to want to see a bigger accumulation of evidence. But it's unambiguously good news.

HORSLEY: You know, the stock market took off this morning shortly after the inflation report came out. The Dow Jones Industrial Average jumped about 500 points in the early minutes of trading. By the end of the day, though, stocks had settled back to a more modest gain. The Dow closed just about 100 points. Investors are taking this report as good news. But there's a long way to go before the fight with inflation is over.

SUMMERS: NPR's Scott Horsley. Thank you as always.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

Scott Horsley
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.