Inflation Has Been Cooling. Could That Trend Reverse in 2023?

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  • On an annual basis, inflation has been slowing since mid-2022.
  • That pattern is unlikely to reverse this year, due to factors like layoffs and stimulus funds running out.

While inflation could tick upward on a monthly basis, for the most part, we should expect a steady decline.

Inflation has been a big problem for U.S. consumers for well over a year now. And at this point, those who have continuously racked up credit card debt because of it are no doubt tired of seeing their balances grow.

Unfortunately, inflation could be with us for quite some time still. But we're very likely past the peak of inflation. And we're also likely to see inflation largely cool down in the course of 2023.

What will inflation look like over the next 10 months?

In January, consumers got a bit of a shock as the Consumer Price Index (CPI), which measures changes in the cost of consumer goods and services, rose 0.5% from the previous month. But on an annual basis, January's CPI reading was 6.4%. And that's well below the CPI's June 2022 reading, which showed the index up 9.1% on an annual basis.

In fact, since peaking in June, the CPI has been showing a lower level of annual basis consistently. So there's reason to think that pattern will continue between now and the end of the year.

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This isn't to say that we won't see some month over month increases for the CPI. But hopefully, it is fair to say that we're past the peak of inflation, and that things will ideally get better from here.

Consumer spending is likely to slow

A big reason we should see inflation continue to cool in 2023 is that consumer spending is more likely than not to decline. For one thing, layoffs among large employers are unfortunately becoming more commonplace. And while that doesn't necessarily spell immediate doom and gloom for the economy and job market as a whole, it does mean that consumers are more likely to be mindful of their spending in light of job loss-related fears.

Also, a big reason consumers were able to spend money so aggressively in 2022 was that many were still sitting on leftover COVID-19 stimulus funds. But the federal government did not send stimulus checks into Americans' bank accounts in 2022 like it did in 2021. And so at this point, it's fair to assume that a lot of that stimulus money is long gone.

Coping with inflation

Many signs point to decrease in inflation between now and the end of the year. But if you're having trouble coping with higher living costs right now, you may want to look at the gig economy. Picking up a second job could give your income a nice boost and make your higher bills easier to manage.

Granted, you could also try cutting back on expenses if the idea of taking on a second job doesn't appeal to you. But many people who are struggling with inflation are already living pretty frugally. So if you're in that boat, growing your income may be the most effective way to cope with inflation until it cools off to a more notable degree.

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