Inflation Trends and Prospects in the United States, 2024

In June 2022, US inflation hit a 40-year high. By December 2023, however, it had declined significantly, according to the latest data from the US Bureau of Labor Statistics (BLS). This decline can be attributed to a number of factors, including interest rate hikes by the US Federal Reserve, supply chain efficiencies and falling gasoline prices.

Although inflation has eased, consumers are still feeling the sting of higher prices. This is due to the fact that prices have increased significantly compared to pre-pandemic. If we compare prices in December 2023 to January 2020, overall prices are up 19%, food prices are up 25%, energy prices are up 26% and shelter services prices are up 21% (see figure below).

Let’s look at the trends in various measures of inflation reported by the BLS:

• General inflation decreased from 9.1% in June 2022 to 3.4% in December 2023. Reported overall increase in the average price level of all goods and services in an economy. The BLS refers to this as the “All species” category. On an annual average basis, this declines from 8.0% in 2022 to 4.1% in 2023.
• Food inflation decreased from 10.4% in June 2022 to 2.7% in December 2023. Reported increase in the average price of food over time. In the food category, the BLS distinguishes between “food at home” and “food away from home.” The food at home The category includes purchases from grocery stores such as fruits, vegetables, dairy products, meat and other staple foods. Decreased from 12.2% in June 2022 to 1.3% in December 2023. food away from home The category consists of meals and snacks purchased at restaurants, cafes and other food service outlets. It has remained somewhat elevated. In December 2023, food-away inflation was 5.2%.
• Energy inflation falling from 41.6% in June 2022 to -2.0% in December 2023. It is another important aspect of headline inflation, as energy costs significantly affect both households and businesses. The BLS classifies energy inflation into two main categories: energy goods and energy services. Energy commodities include natural energy resources consumed such as fuel oil, gasoline, diesel fuel and other motor fuels. It decreased from 60.6% in June 2022 to -2.9% in December 2023. Energy services include electric and utilities (piped) gas. It decreased from 19.4% in June 2022 to -1.1% in December 2023.
• Nuclear inflation decreased from 5.9% in June 2022 to 3.9% in December 2023. It is measure of price changes for all items in the consumer price index except food and energy. This exemption is based on the idea that food and energy prices may be more volatile and subject to short-term fluctuations, which may not necessarily reflect underlying inflationary pressures in the broader economy. The BLS refers to this as the “All items less food and energy” category.
• For goods inflationthe BLS reports inflation rates for various commodity categories, including “Commodities less food and energy commodities.” Decreased from 7.2% in June 2022 to 0.2% in December 2023. Subcategories include household furniture and supplies (window and floor coverings, furniture, bedding, appliances, tools, cleaning supplies), clothing (for men, women and babies, as well as footwear and jewellery), transport goods less motor fuel (new vehicles, used cars, spare parts), medical care products (prescription and non-prescription drugs, equipment), leisure items (video/audio products, pets, sporting goods), basic education and communication products (books, computers, smartphones), alcoholic beverageand other goods (tobacco, personal care products). All commodities showed a decline in inflation except medical care products (see figure below).
• For service inflation, the BLS reports inflation rates for various service categories, including “Services less energy services.” It remained elevated at 5.3% in December 2023. It has a Subcategory “Shelter”, which is a general category for all services including roof rental, water and sewer maintenance, garbage and waste collection, housework, medical care services (hospital, insurance, professionals), Transportation services (rental, maintenance, insurance, public), leisure services (video/audio, pet, movie/event tickets), education and communication services (tuition, phone, internet), and other personal services (legal, financial, personal care, laundry, etc.). Shelter inflation was stickier, remaining high at 6.2% in December 2023.

Looking ahead to 2024, Forrester expects headline inflation to decline from an average of 4.1% in 2023 to 2.6% in 2024. We expect core inflation to decline to 3.0% in 2024, mainly due to of the expected decline in services inflation. These estimates are based on Forrester’s analysis of BLS inflation data and other macroeconomic indicators. We will continue to monitor BLS inflation data and provide periodic updates as more actual data becomes available.

This blog was written by Principal Forecast Analyst Jitender Miglani and originally appeared here.