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Inflation is down as gas and grocery prices fall

JUANA SUMMERS, HOST:

Filling your gas tank or your grocery cart puts a smaller dent in your wallet these days. Gas prices have fallen sharply in recent weeks, and grocery prices are starting to level off as well. Those are some of the most visible costs that consumers encounter on a regular basis. And they helped to keep the overall inflation rate in check last month. This welcome news comes as the Federal Reserve is meeting this week to decide how to proceed with interest rates. NPR's Scott Horsley joins us now. Hi, Scott.

SCOTT HORSLEY, BYLINE: Hi.

SUMMERS: So, Scott, inflation has been gradually cooling off in recent months. What'd you learn from today's report?

HORSLEY: Today's report tells us that that cooling trend continued into November. Prices overall last month were up 3.1% from a year ago. That's a slightly smaller increase than we saw in October. There was a big drop in gasoline prices, which helped to offset rising rents and other expenses. And what's more, supermarket prices are up less than 2% over the last 12 months. Food economist David Ortega of Michigan State University says that's the smallest annual increase in almost 2 1/2 years.

DAVID ORTEGA: When it comes to food, you know, it hits very close to home because we go to the grocery store on a weekly basis. And so consumers are really attuned to the price level. And we're in the holiday season. So, you know, a lot of the holiday celebrations center around food. So it's something that people are noticing.

HORSLEY: If you're baking during these holidays, you'll be glad to know the cost of eggs has come back to Earth. After soaring last year, egg prices are down about 22% over the last 12 months. Other grocery prices are still up, but they're no longer climbing as fast as they had been.

SUMMERS: OK, that's some good news. Scott, what else is getting cheaper, and what's getting more expensive?

HORSLEY: A lot of travel-related things are getting cheaper - airfares, hotel rooms, also furniture and appliances. What's still going up in price is mostly services - restaurant meals, car repair and, of course, housing. Housing costs are expected to moderate over time based on what we're seeing with new leases, but that has been a slow process. And, of course, housing is a big part of many people's budgets.

SUMMERS: Right. And, Scott, inflation watchdogs at the Federal Reserve are meeting this week here in Washington. How are they likely to respond to today's report?

HORSLEY: You know, this report, along with the jobs report we got last week, is pretty much just what the Fed wants to see. Inflation is gradually coming down. It's not back to the Fed's target of 2%. But it is moving in that direction. And this time last year, a lot of people thought that, to get inflation under control, the Fed was going to have to slam the brakes so hard with higher interest rates, it would send the economy into recession and throw millions of people out of work. Instead, employers have added more than 2.5 million jobs in the first 11 months this year. And while polls suggest a lot of people are still grumpy about the economy, that may be starting to change. Joe Brusuelas is chief U.S. economist at RSM. He says wages are now going up faster than prices, so people are starting to see a real bump in their buying power.

JOE BRUSUELAS: Where we're at now with the economy - this is what a soft landing looks like, and this is what full employment feels like. And that's why we're optimistic about the direction of the U.S. economy heading into 2024.

HORSLEY: Now, nobody thinks the Fed's going to declare victory over inflation this week. Interest rates are likely to stay high for a while to come. But policymakers will offer some guidance tomorrow about where they think rates might go next year. And Brusuelas thinks by some time around the middle of 2024, the Fed might be ready to start cutting interest rates.

SUMMERS: NPR's Scott Horsley. Thanks, as always.

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

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

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.