A couple of indicators about prices and wages, released last week, have brought back references to a soft landing, understood as the possibility of lowering inflation without higher unemployment. By contrast, the fear that the control of inflation could lead to a recession has been heard less.

According to the Labor Department, the consumer price index in June increased 3 percent from a year earlier, lower than the 9 percent increase of June 2022. The personal consumption expenditures price index excluding food and fuel, preferred by the central bank, decreased to 4.6 percent in May, from 5.4 percent in March 2022, still above the central bank’s 2 percent objective.

Also, for the first time in two years, hourly wages of private sector workers increased 4 percent in June from a year earlier, above the 3 percent increase in the June consumer price index. Wage increases have been stronger for low-income workers in sectors such as leisure and hospitality, by contrast with the high-tech sector where big companies have laid off many workers.

The markets reacted positively, expressing “cautious hope on the economy” (The Wall Street Journal 07/17/23), with the S&P 500 index rising 2.4 percent last week, the biggest increase in a month. Also, business and academic economists polled by The Wall Street Journal (07/17/23) lowered the probability of a recession in the next 12 months to 54 percent from 61 percent. Also, nearly 60 percent of them said their main reason for optimism is their expectation that inflation will continue to slow.


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