Inflation expected to have increased in October

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(NEW YORK) — Inflation has loomed over the U.S. economy like a movie villain, haunting grocery store trips and gas runs. While costs remain much higher than they were a few years ago, those rapid price increases have mostly vanished.

Inflation stands at its lowest level in more than three years, hovering right near the Federal Reserve’s target rate of 2%, U.S. Bureau of Labor Statistics data this week showed.

Not long ago, a once-in-a-century pandemic upended the economy, sending millions nationwide into lockdown and snarling the global supply chain. Meanwhile, trillions of dollars in government support helped Americans spend amid the calamity.

A resulting imbalance between supply and demand sent prices soaring. The Russia-Ukraine war exacerbated the problem, causing gas and food shortages. Within a few years, the massive issue has largely been resolved.

“This was the highest inflation over the longest period that we’ve seen in decades. It was serious,” Claudia Sahm, chief economist at New Century Advisors and a former Fed official, told ABC News.

Here’s what to know about how inflation has come back down:

Repaired supply chain

During the pandemic, factories worldwide shut down. Workers stayed home for fear of getting sick. Freight ships waited off the coast of overwhelmed U.S. ports.

The pandemic clogged the global supply chain, imposing shortages for everything from cars to lumber to exercise equipment. Meanwhile, people stuck at home focused their spending on those exact sorts of products, since COVID-19 shutdowns prevented them from going out to eat or taking a vacation.

When too much money chased after too few products, prices climbed.

“The pandemic was the root of all evil in the economy,” Sahm said.

When lockdown rules were lifted, demand for goods slowed and manufacturers revved up production as workers returned. The nation’s ports loosened up the backlog of container ships, cutting freight prices dramatically and lowering costs for retailers.

Economists disagree over the role that elevated corporate profits played in driving inflation, as some say they account for more than half of the increase in prices while others say they have caused little or none of the hikes.

In some cases, the easing of supply chain blockages took months or even years to work their way through the global economy.

Take car prices, for example. When semiconductor production slowed nearly to a halt, carmakers lost out on a part necessary for production. Car prices skyrocketed, sending many consumers to the used car market. In turn, used car prices soared. So did costs for car repairs and, as a result, car insurance.

“Those have all now unwound,” William English, a professor of finance and former economist at the Federal Reserve, told ABC News.

Interest rate hikes

In response to rising inflation, the Fed embarked upon an aggressive series of interest rate hikes. Beginning in 2021, the Fed rapidly hiked interest rates, eventually putting borrowing costs at their highest level in more than two decades.

In contrast with the supply chain fixes, the interest rate hikes aimed to address the other side of the equation driving inflation: excess demand.

In March 2020, then-President Donald Trump signed into law a $2.2 trillion economic stimulus package, including direct payments of $1,200 and expanded unemployment insurance, among other measures. Months later, in December, Trump enacted a second $900 billion round of government support.

The following year, President Joe Biden signed a $1.9 trillion economic stimulus package of his own, including another round of $1,400 direct payments as well as an expansion of the child tax credit.

The government support helped buoy demand, even as the pandemic posed major challenges for the supply chain and decimated the service economy made up of sectors like restaurants and hotels.

“Now you have money, and nowhere to go and buy things,” said Hernan Moscoso Boedo, an economist at the University of Cincinnati.

By raising interest rates, the Fed made borrowing more expensive for consumers and businesses alike, making it difficult for them to take on loans for big purchases or large investments.

“Over the last few years, we’ve seen less money in the market because of the interest rates,” Boedo said, adding that the reduction of demand has helped ease prices.

Last month, the Fed reversed course, cutting interest rates by half a percentage point and dialing back the fight against inflation. While interest rates remain high relative to recent decades, the landmark shift suggests that the Fed considers the end of the inflation battle to be in sight.

“They’re close to being done,” Boedo said.

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(NEW YORK) — Tens of thousands of U.S. dockworkers are set to walk off the job early Tuesday morning, clogging dozens of ports along the East and Gulf coasts and potentially raising consumer prices ahead of the holiday season.

The ports account for more than half of the nation’s container imports, facilitating the transport of everything from toys to fresh fruit to nuclear reactors, JPMorgan senior equity analyst Brian Ossenbeck said in a report shared with ABC News.

A prolonged work stoppage of several weeks or months could rekindle inflation for some goods and trigger layoffs at manufacturers as raw materials dry up, experts said.

“A strike would be very, very disruptive,” said Jason Miller, a professor of supply-chain management at Michigan State University who closely tracks imports, told ABC News.

“You can’t take all this freight and either send it to other ports or put it on airplanes,” Miller added. “There is no plan B.”

The International Longshoreman’s Association (ILA), the union representing East Coast and Gulf Coast dockworkers, is seeking higher wages and a ban on the use of some automated equipment.

“ILA longshore workers deserve to be compensated for the important work they do keeping American commerce moving and growing,” the ILA told ABC News in a statement on Monday. “Meanwhile, ILA dedicated longshore workers continue to be crippled by inflation due to USMX’s unfair wage packages.”

The U.S. Maritime Alliance, or USMX, an organization bargaining on behalf of the dockworkers’ employers, declined to respond to an ABC News request for comment.

President Joe Biden retains the power to prevent or halt a strike under the 1947 Taft-Hartley Act. The U.S. Chamber of Commerce sent a letter to Biden on Monday urging the White House to intervene, which it has previously said it will not do. The White House told ABC News in a statement that it has been in contact with both the union and management in recent days.

“This weekend, senior officials have been in touch with USMX representatives urging them to come to a fair agreement fairly and quickly – one that reflects the success of the companies. Senior officials have also been in touch with the ILA to deliver the same message,” White House spokesperson Robyn Patterson said.

A prolonged East Coast and Gulf Coast port strike could moderately increase prices for a range of goods, experts told ABC News. That upward pressure on prices would result from a shortage of products caught up in the supply chain blockage, leaving too many dollars chasing after too few items, they added.

Food products are especially vulnerable to an uptick in prices, since food could spoil if suppliers sent the products ahead of time to minimize the strike impact, as they have done for some other goods, Adam Kamins, a senior director of economic research at Moody’s Analytics, told ABC News.

Additionally, a significant share of the nation’s imported auto parts pass through the ports impacted by a potential strike, which could cause an increase in vehicle prices if the strike persists.

Price increases have slowed dramatically from a peak in 2022, but inflation remains higher than the Federal Reserve’s target rate of 2%. A strike could prevent further progress, according to Kamins.

“We’re not talking about prices skyrocketing by any means, but I think it halts the momentum we’ve had over the last year or so getting inflation back in the bottle,” he said.

In 2002, a strike among workers at West Coast ports lasted 11 days before then-President George W. Bush invoked the Taft-Hartley Act and ended the standoff. However, the last time East Coast and Gulf Coast workers went on strike, in 1977, the work stoppage lasted seven weeks.

Tuesday’s potential work stoppage follows high-profile strikes undertaken last year by auto workers as well as Hollywood writers and actors. Most recently, 33,000 Boeing workers walked off the job in early September, demanding better pay and retirement benefits.

“Trade unions all over the country have been going out on strike,” Sriram Narayanan, a professor of supply chain management at Michigan State University, told ABC News. “We’re seeing that happen now at the ports.”

ABC News’ Elizabeth Schulze contributed this report.

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