📉 Will inflation keep falling?

published5 months ago
3 min read

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In this issue

  • Make a forecast: Where will US inflation be by June?

Nonrival is back after a few weeks of vacation and then work travel! Thanks for forecasting. Send feedback to newsletter@nonrival.pub.

📉 Will inflation keep falling?

Inflation is still haunting the US economy. It’s the reason the Federal Reserve continues to raise interest rates, which in turn is why there may be a recession this year. This dynamic—inflation and the interest-rate hikes to fight it—is also why Silicon Valley Bank failed. Until inflation is under control, the US economy will continue to wobble.

Headline inflation rates have fallen since their June peak, led by eases in energy and food prices. But some other prices have proven sticky, including housing and restaurants.

This week Nonrival is asking: Will inflation keep falling? Specifically:

  • Will the Consumer Price Index (CPI) rise by more than 4.5% in June? (Year-over-year.)


The current wave of inflation was caused by a combination of supply-side and demand-side factors: Covid-related supply-chain snarls, the invasion of Ukraine (and its effect on food and energy prices), and the money governments pumped into the economy during the pandemic.

Many of those pressures have eased. Energy prices have fallen, food prices are still rising but much more slowly, supply chains have mostly recovered, and households have spent the majority of the stimulus money they saved during the pandemic.

Two worries remain: A tight labor market and higher-than-normal inflation expectations. A hot labor market can drive a “wage-price spiral” that fuels inflation. But there’s not much evidence of that dynamic right now and lots of debate over how tight the labor market really is. Expectations for future inflation are higher than pre-pandemic but down from last summer.



“At the February FOMC meeting, Jerome Powell said that ‘the disinflationary process has begun’—and since then the process has continued, albeit bumpily and slower than previously anticipated. Inflation itself has continued to fall, near-term business inflation expectations have continued moderating, wage growth has decelerated, and credit conditions have tightened (especially in the wake of Silicon Valley Bank's failure). There's still nowhere near enough progress to consider excess inflation vanquished—indeed, Fed staff members now believe it will require a “mild recession” this year to achieve that outcome—but the effects of tighter monetary policy on inflation are finally being felt in a big way.” —Joseph Politano, Apr. 2023
“Consumers still have pent-up demand and (in the aggregate) the wherewithal to finance it… Labor markets have eased but only slightly… Inflation appears to have peaked but remains well above the Federal Reserve’s target… The Fed will probably make a couple of further 25 basis point hikes… US growth will fall short of trend, but a recession is not the most likely outcome… Inflationary supply shocks have abated, and inflation expectations are still contained… The unemployment rate will probably rise and inflation will gradually slow.” —Karen Dynan, PIIE, March 2023 (pdf)
“We are, in my view, more likely than not to return to inflation at around 2 percent a year, or perhaps just a little bit higher. This is also what markets expect… There are two (overlapping) arguments why this might prove too optimistic. One is that supply conditions have become more inflationary. De-globalisation and other shocks have permanently lowered the elasticity of supply of key inputs. That will raise the costs of keeping inflation down. The other is that the political economy of curbing inflation has worsened. Thus, the public cares less about inflation now, partly because it has no memory of a long period of high inflation.” —Martin Wolf, Financial Times, April 2023


For those who want to give a forecast value not listed below, there's a slightly new process: Click the link in parentheses to do so. If you click one of the percentage options you'll no longer have the chance to give a more precise value via the survey.

How likely is it that the Consumer Price Index (CPI) rises by more than 4.5% in June? (Year-over-year.)

​~10% chance​ ​​​​

​​​~30% chance​ ​​​​

​​​~50% chance​ ​​​

​​​​~70% chance​ ​​​​

​​​~90% chance​​​​

(Click here to make a more precise forecast.)

The fine print

Just want to make a quick forecast? Click a link above and you're done! Your forecast will be recorded.

Or, click a link and then complete the survey. You can provide your reasoning and predict what other readers will say.

Deadline: Make a forecast by 9am ET Wednesday April 26.

Resolution criteria: The outcome will be determined using the 12-month percentage change for June 2023 as first released by the Bureau of Labor Statistics (BLS) for "All items," expected in July 2023 (BLS).


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