Whew! Latest fed report shows where inflation is starting to cool down

Does it seem like the prices you’re paying for products and services are going down? Or at the very least, not shooting up like we saw from late 2021 through the early months of 2023? It’s not your imagination.

Annual wholesale price inflation (AWPI) increased 1.3% year over year in October, according to the U.S. Bureau of Labor Statistics’ Producer Price Index (PPI). AWPI tracks wholesale prices businesses charge each other and usually predict consumer prices. For the past seven months, AWPI has come in at 2.5% or lower after spiking at over 11% in mid 2022.

The drop in prices was spurred by fuel costs taking a nosedive. The 15% drop in gasoline reduced the cost of doing business (and temporarily tanked stocks like ExxonMobil and Chevron.)

The overall PPI for final demand goods fell 1.4% last month. Prices for final demand services stayed the same in October.

Will we see a less globalized, more nationalized supply chain?

While the PPI is just one economic indicator for businesses to consider, the cooling-off in B2B inflation is good news for struggling companies. Businesses aren’t jacking up wholesale prices on each other because the supply chain disruptions and shortages caused by COVID-19 restrictions are over, for the most part.

A secondary cause: U.S. manufacturing is slowly but surely on the rise. The U.S. is waning off Chinese imports as well. We’re a long way away from 1950s factory production but the Biden administration’s efforts to build new factories is bearing fruit. The biggest problem manufacturers are facing these days is a shortage of qualified labor.

The flip side: China is also becoming less dependent on American imports. Which helps explain why some of the biggest companies in the world sponsored a lavish dinner for President Xi Jinping and company representatives gave him a standing ovation at his summit with Biden in San Francisco.

What about interest rate hikes made by the Federal Reserve? Economists continue to disagree on how much they’ve helped or hurt. To be fair, the Fed is like the proverbial fireman who rushes to the scene after Congress and the President decide to print money out of thin air and funnel it to favored areas of the market.

The budget deal to keep the government funded through February illustrates once again how Democrats and Republicans won’t come together to make budget cuts and tackle deficit spending. Especially not with a presidential election coming up in less than a year. Businesses can only do their best to adjust accordingly.