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Ball State economist: Prices won’t drop dramatically due to low inflation

INDIANAPOLIS (WISH) — The White House on Wednesday announced inflation dropped from 9.1% in June 2022 to 3% in July 2023.

Michael Hicks, director of the Center For Business Research at Ball State University, says the Federal Reserve reducing interest rates incrementally over the past year helped reduce inflation.

“Raising interest rates, which reduces the cost of consumer borrowing, or consumer debt, which causes us to borrow less, to spend our money paying off debt, rather than going on vacation and buying a new car,” Hicks said.

Gas prices have decreased signicantly over the past few months and food prices have stablilized.

“There shouldn’t be any expectations that prices in general are going to come back down, just that the increase in prices will be more like it normally is, about 2% to 2-1/2% per year,” Hicks said.

The government’s goal is to bring inflation down to about 2.5%, which is where it hovered between the end of the Great Recession in 2009 and the beginning of the COVID-19 pandemic in 2020.

COVID lockdowns and a labor shortage weren’t the only factors that caused prices to skyrocket over the past year. Russia’s invasion of Ukraine in early 2022 and an outbreak of avian flu last year caused prices to go up.

“At the same time supply chain issues across the board have eased, we’re seeing new car lots fuller than they were a year ago, all of those things that would make our economy look stable a year ago, healthier ones are in place,” Hicks said.

The streak of declining inflation could be reversed if another crisis hits, such as a war in the Middle East or a bout of avian flu.