Told ya! INFLATION WATCH tells us things are under control. So why are rates still high?

I've been predicting a low number for inflation in May, given the plateauing and then decline in gas prices, along with no significant changes in prices at the stores. And sure enough, look what the Consumer Price Index report told us this morning!

JUST IN: Good news on inflation. It cooled to 3.3% (y/y) in May. The gas price decline really helped. May also saw the lowest monthly inflation in more than a year (see chart)

“Core inflation” decline to 3.4% (y/y) in May —> the lowest since April 2021.

**Rent remains the the… pic.twitter.com/Fm1b7ZBU85

— Heather Long (@byHeatherLong) June 12, 2024

You can really see the inflation cooldown at last

Food +2.1% in past year -->smallest since 2020
Restaurants +4% in past yr-->smallest since 2021
Core inflation 3.4% -->smallest since 2021
Commodities -1.7% -->smallest since 2004
New vehicles -0.8% -->smallest since 2018
Pet… pic.twitter.com/aV2xUSv9cK

— Heather Long (@byHeatherLong) June 12, 2024

Even better is the fact that it was the 4th straight month that food at home (groceries, generally) did not increase, with prices for dairy products and nonalcoholic beverages falling in May. The only chronic increases remain in shelter (up 0.4% in May, 5.4% in the last 12 months) and auto insurance (up 20.3% in the last 12 months, although it did go down 0.1% in May after two sizable increases in March and April.

The flat CPI also means we had strong increases in real average hourly earnings, which went up by 0.5% in May, and reversed the downward trend of the last 3 months.

And it increased the inflation-adjusted growth in wages that we've seen in wages compared to what we had during what Donald Trump called the "greatest economy ever." Aka, before the COVID pandemic broke out.

Hourly wage gains have exceeded inflation, if the starting point is Feb 2020 pre-pandemic:
+25% Hourly wages
+21% Inflation (CPI-All)
+19% Inflation (Core; Ex-food & energy)

Workers have ~4% higher real wages (purchasing power) than in the vaunted 2019 economy. pic.twitter.com/pWmMgJ4wGd

— David Doney (@David_Charts) June 12, 2024

Seems like a good economy but not one that's overheating, with inflation staying at a manageable level. A perfect scenario for the Federal Reserve to reduce interest rates from the 23-year highs that they sit at today.

And yet later this afternoon...

JUST IN: The Federal Reserve predicts just ONE rate cut in 2024.

4 of the 19 Fed leaders predict NO CUTS
7 of the 19 Fed leaders forecast 1 cut
8 of the 19 forecast 2 cuts pic.twitter.com/GIW5NMlbsF

— Heather Long (@byHeatherLong) June 12, 2024

Summary of Fed Chair Powell today:

1) He opened the door to a September rate cut (He said 1 or 2 are "plausible" in 2024)
2) Economy remains strong. "We're getting good results here"
3) Fed needs more good data on inflation
3) He thinks labor market is back to 2019 conditions pic.twitter.com/y0fGgfZzzB

— Heather Long (@byHeatherLong) June 12, 2024

Frustrating stuff, especially since starting to lower rates would likely encourage more homeowners to be open to putting their homes on the market, and likely limit the increases in housing prices that are one of the few real headwinds in this economy.

I guess we'll have to hope for more sanguine inflation news for the June CPI report. And given how several chain stores have announced price cuts in recent weeks, and that gas prices are now under $3 in parts of Madison, it's set up to be a tame number. Hopefully that would be the final push that the Fed needs to stop chasing the ghosts of 2022's inflation, and have an interest rate policy that is in line with the reality of 2024's America.