From Chicken Wings to Cars, Prices Dropped... Has Inflation Peaked?

Service Inflation Slowdown Is the Key

[Image source=Yonhap News]

[Asia Economy Reporter Yujin Cho] From chicken wings to cars and apartment rents, the inflation rate slowdown is becoming more evident. Although the high inflation that lasted for over a year due to last year's global supply chain collapse has begun to ease, it is expected to take more time before the trend shifts to a sustained decline as the rise in wages solidifies the upward trend in service prices.

According to the Washington Post (WP) on the 4th (local time), chicken prices, which hit an all-time high earlier this year due to seasonal demand decrease and increased supply, have recently dropped by up to 20% compared to May.

According to the Manheim Index, which tracks used car prices in the U.S., wholesale prices for used cars fell 15% last month compared to January this year. The nationwide average rent increase rate for two-bedroom apartments slowed significantly to 8.1%, compared to 14.6% in April last year. Anthemos Georgiades, CEO of Jumper, said, "The real estate rental market is cooling rapidly," and predicted, "The price decline will be even greater next year."

Indicators suggesting that the inflation trend has peaked and is slowing down are being released one after another. The core Personal Consumption Expenditures (PCE) index, which the U.S. Federal Reserve (Fed) considers the "most accurate inflation gauge," rose 5% year-over-year, a smaller increase than 5.2% in September.

The U.S. Consumer Price Index (CPI) inflation rate for October, released on the 10th of last month, also slowed to 7.7%, the lowest since January this year. The core CPI, which excludes volatile food and energy prices, dropped to 5.1% in October from 12.3% in February when global supply chain disruptions peaked.

The decline in freight costs, a key driver of inflation, also influenced the inflation outlook. According to Freights, an online freight pricing service, the ocean freight rate from China to the U.S. West Coast for one 1FEU (40-foot container) was $1,935, a drop of over 90% from the peak of $20,586 in September last year.

Amid prolonged global supply chain disruptions, abnormally accumulated inventories are being released into the market in large quantities, taking advantage of falling raw material costs and freight rates, so the downward trend in commodity prices is expected to continue for the time being.

Stephen Blitz, chief economist at financial research firm TS Lombard, said, "The worst of inflation is behind us," adding, "The key is at what point inflation stabilizes."

However, experts believe it will take considerable time for the service price inflation rate to slow down significantly, as high wage increases continue in the service sector, unlike manufacturing. Nationwide's chief economist, Kathy Bostanich, said, "While the decline in goods prices is expected to continue for the time being, patience is needed to confirm a slowdown in the pace of service inflation."