A renowned economist and educator has issued a warning regarding the future of prices for Americans dealing with the highest inflation rates in four decades. Mohamed El-Erian, the chief economic adviser for Allianz, stated that although inflation is slowing, this only signifies a deceleration in the rate of price increases. During an appearance on CBS’ “Face the Nation,” he clarified that this does not mean prices will revert to levels seen before the inflation spike in 2022, following the COVID-19 pandemic.
Host Margaret Brennan noted the Federal Reserve’s upcoming meeting, where interest rate decisions are anticipated as inflation approaches the 2% target. However, she highlighted that many people still perceive housing and grocery prices as high and are questioning when these will decrease. El-Erian responded that such expectations are unlikely to be met.
El-Erian explained that while interest rates and the rate of living cost increases are declining, reducing overall prices remains challenging. This, El-Erian noted, presents a political issue, as there is a common misconception that when inflation decreases, prices decrease, rather than the rate at which prices rise.
He added that a significant drop in prices could lead to adverse economic conditions. In June 2022, inflation surged to a 40-year high, reaching 9.1% annually due to pandemic-driven supply chain issues and federal relief spending. Although it has since reduced to 2.4% by September, facilitated by the Federal Reserve’s interest rate hikes, prices remain approximately 20% higher than four years ago.
The issues of inflation and the economy continue to be critical for voters in the upcoming presidential election. Democratic candidate Vice President Kamala Harris has proposed increased government spending on small business investments and tax credits for families, while Republican former President Donald Trump plans to reduce regulations on energy production and increase tariffs to address the national debt.
Despite the October jobs report falling short of expectations, El-Erian believes that the economy remains robust. He acknowledged the impact of recent strikes and hurricanes on the report but emphasized the country’s economic growth and its performance relative to other advanced economies. According to El-Erian, the primary challenge for the next administration is to sustain this economic exceptionalism and prepare for future prosperity.
