Economist: Inflation Rate Lower but the Number Doesn’t Tell the Whole Story

(KNSI) — The Labor Department says May’s 4% inflation rate is the lowest since March 2021, but economist Peter Orazem says don’t get too excited.

He notes the overall inflation rate looks better; the nation’s core inflation rate, which takes out food and energy prices, is still over 5%, increasing at 5.3% per year. The Federal Reserve’s target inflation rate is 2%.

According to the Bureau of Labor Statistics’ Consumer Price Index, prices at the grocery store went up .1% from April to May. Menu items went up by .5% at the same time. Grocery prices are nearly 6% more expensive than this time last year, and menu prices rose over 8% in the past year. Energy prices, meanwhile, are down 11.7% after spiking following Russia’s invasion of Ukraine in February of last year.

The Fed meets today to make another decision on whether or not to continue raising interest rates, which Orazum believes they will because there is a big weight on the core inflation number, which only went down by .2%. He says that’s still “not very much in the direction they want to go.”

CME FedWatch says there is a greater than 70% chance the Fed will skip a rate hike to give themselves time to assess the effects of their changes so far, and investors believe the Fed will hold policy steady now before lifting rates one more time in July.

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