ICYMI: Ten Charts That Explain the U.S. Economy in 2023—Charts 5 & 6: Inflation Decelerated, In Large Part Thanks to Healing Supply Chains

The U.S. economy defied expectations this year. Many forecasters predicted a recession, some even asserting a "100%" probability of a recession. President Biden never believed that was necessary—and he was right.

Instead of a recession, inflation is down to 2% over the last six months, unemployment has stayed below 4% for 22 months in a row, and wages, wealth, and income are all higher now than they were before the pandemic began. While there is more work to do—from lowering prescription drug and energy costs to cracking down on price gouging by banning hidden junk fees and calling on corporations to pass savings on to consumers—this year has brought remarkable progress.

The Council of Economic Advisers is highlighting ten charts that capture the most important economic developments of the past year. They depict an economy growing from the middle out and bottom up—powered by Bidenomics.

Charts 5 and 6:

Inflation decelerated throughout the year

After peaking in summer 2022, inflation has been on a downward trend for a year and a half thanks to a retreat of food, energy, and goods inflation. Inflation in the services sector—which heavily depends on wages as labor is the most important cost in the production of services— has decelerated more slowly and in lockstep with a gradual moderation of wage inflation. Meanwhile, market data on new leases suggest that housing price pressures should continue to ease.

…in large part thanks to healing supply chains.

As CEA has highlighted, the rise and subsequent fall of inflation during the pandemic was overwhelmingly linked to supply-side forces, including the unsnarling of global supply chains and the rise in prime-age labor force participation. Our analysis finds that the unsnarling of supply chains, either by themselves or in tandem with cooling demand, explain 80 percent of the disinflation that has occurred thus far. In fact, one of the most important economic developments of the year was the achievement of significantly lower inflation without a substantial rise in the unemployment rate.

Read the full blog here.