Inflation numbers out Tuesday are encouraging, providing more evidence that any movement to continue raising interest rates at breakneck speed and potentially slow the economy needs to be squashed. The Consumer Price Index (CPI)—released by the U.S. Bureau of Labor Statistics—rose 0.1% in November, and the all-items index increased 7.1% year-over-year. EPI research director Josh Bivens breaks down what the data tell us about rising prices.

“Inflation can normalize without taking a hammer to the head of the economy,” stresses EPI Research Director Josh Bivens, about the report and any steps by the Federal Reserve to push for steep interest rate hikes at its meeting this week.

“It was a very good report,” he explained. “The remaining inflation in this report was essentially food and shelter.” While rising food prices harm consumers, there’s no policy lever that the Fed has to usefully target these. These price increases are related, he added, to Russia’s invasion of Ukraine and global commodity markets more generally, not to any overheating of the U.S. economy.

“On shelter,” he continued, “the data strongly indicate that large rental inflation declines are on the way in 2023—they’ve already shown up in industry data, and these very reliably show up 6-12 months later.” 

“The large goods price declines lots of us have been predicting would come when supply chains unsnarled have finally arrived,” he said. We saw huge declines in used car prices this month and these will continue, he predicts. “These goods price declines should give us some real breathing room in the next four to five months to absorb the housing inflation that will persist for a little while longer before coming down in 2023.” 

Trends in wage growth, which some pundits blame for inflation, are “a mixed bag at the moment, but definitely down since its peak in mid-2021 and early 2022,” Biven noted. “But no new wage data came out today, so raising concern over wages in the face of today’s favorable CPI report seems like some hand waving to distract attention from good news.”

EPI research has shown the role corporate profits have played in driving inflation.

In the end, he stressed, today’s CPI report “definitely should solidify any urge by the Fed to ramp down the pace of interest rate hikes,” adding that “there was nothing in today’s report that says anything but ‘inflation slowing a lot,’ even with the economy still looking healthy on many measures. In short, a ‘soft landing’ remains in reach, and the Fed should try really hard to secure it.”