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Inflation may drop, but that doesn’t mean prices will drop, the expert explains
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Inflation may drop, but that doesn’t mean prices will drop, the expert explains

FILE-Consumers shop for items at a Trader Joes in New York. (Photo by Robert Nickelsberg/Getty Images)

A prominent economist and educator warns that Americans are being squeezed by the highest rates of inflation in four decades it is unlikely that prices will fall in the future.

Allianz Chief Economic Adviser Mohamed El-Erian said on Sunday that while inflation is cooling, meaning the rate of price increases has slowed. It doesn’t mean, he explained on CBS’ “Face the Nation,” that prices will eventually fall to levels seen before inflation spiked in 2022 as a result of the COVID-19 pandemic.

“Well, we know the Federal Reserve meets later this week, they may move on interest rates again because inflation is near or approaching that 2 percent target, but for ordinary people, they see that housing prices are increase. I see the food prices. they are still big. Where’s the scenario where these prices actually go down?” asked host Margaret Brennan.

“Yeah, and that’s what everyone expects, but it’s not going to happen.” answered El-Erian.

WHY ARE CONSUMERS PESSIMISMIC ABOUT THE ECONOMY AS INFLATION COOLS?

“Look, the good news is that interest rates are going to continue to come down. The good news is that inflation, which is the rate of increase in the cost of living, is going to come down. But it’s very hard to get prices down, and that’s one the political problemit’s when you tell people inflation is going down, in their minds they think prices are going down, not the rate of price increase,” he explained.

“So it’s a misunderstanding, unfortunately, but you have to be careful what you wish for, because if prices drop significantly, then we’re in for something much worse economically.”

INFLATION GAUGE, FAVORITED BY FED, SHOWS PRICE GROWTH CONTINUED TO SLOW IN SEPTEMBER

Inflation rose to a 40-year high of 9.1 percent on an annualized basis in June 2022 as a result of pandemic-related supply chain disruptions and an influx of federal spending on relief programs and other initiatives. Although it has since fallen to 2.4 percent in September and the labor market has remained solid amid the Federal Reserve’s interest rate hikes to slow the pace of inflation, prices are still about 20 percent higher than they were four years ago.

Inflation and the economy remain top issues for Will voters voted for the next president of the United States on Tuesday. Both Democratic vice presidential nominee Harris and former Republican President Trump have presented economic plans they say will ease inflationary pressures on families and boost economic growth.

Harris called for new government spending in the form of investments in small businesses and tax credits for families with children, while Trump promised to reduce regulations on energy production and raise tariffs to pay down the national debt.

US ECONOMY ADDED 12,000 JOBS IN OCTOBER, BELOW ECONOMIST EXPECTATIONS

El-Erian said that while prices remain higher than they were four years ago and October’s jobs report came in well below expectations, the overall economy is in good shape.

“So most of the report, as you pointed out, was skewed in a really important way by the strikes, by the hurricanes,” he said.

“The bottom line, Margaret, is that we have an economy that has grown strongly. Inflation is falling, and the main challenge for the next administration is not just maintaining what is called economic exceptionalism, because we are outperforming all other advanced economies. , but also to continue to reposition it for the engines of tomorrow’s prosperity, and that is absolutely critical.”

Eric Revell of Fox Business contributed to this report.

Get the latest updates on this story at FOXBusiness.com