Due to low inflation, prices won’t fall by a significant amount

Indianapolis, Indiana – On Wednesday, the White House made the announcement that inflation had fallen to 3% in July 2023, down from 9.1% in June 2022.

According to Michael Hicks, director of the Center for Business Research at Ball State University, the gradual lowering of interest rates by the Federal Reserve over the course of the past year helped cut inflation.

“Raising interest rates, which reduces the cost of consumer borrowing, or consumer debt, which causes us to borrow less, to spend our money paying off debt, rather than going on vacation and buying a new car,” Hicks said.

The cost of a gallon of gas has dropped significantly in recent months, while the cost of groceries has remained relatively the same.

“There shouldn’t be any expectations that prices, in general, are going to come back down, just that the increase in prices will be more like it normally is, about 2% to 2-1/2% per year,” Hicks said.

The objective of the government is to bring inflation down to approximately 2.5%, which is the rate at which it remained stable from the conclusion of the Great Recession in 2009 until the start of the COVID-19 pandemic in 2020.

In the past year, there have been a number of variables that have led to an increase in prices that have reached unprecedented heights. Two of these factors are COVID lockdowns and a shortage of workers. The invasion of Ukraine by Russia in the early months of 2022 led prices to rise, as did an epidemic of avian flu the previous year.

“At the same time supply chain issues across the board have eased, we’re seeing new car lots fuller than they were a year ago, all of those things that would make our economy look stable a year ago, healthier ones are in place,” Hicks said.

If there is another catastrophe, such as a conflict in the Middle East or an outbreak of avian flu, it is possible that the recent trend of lowering inflation will be reversed.