Mostly thanks to dropping gas pump prices, inflation rate falls to lowest in two years

SALT LAKE CITY — The consumer price index increased just 0.1% for the month of May and 4% from a year ago. The latter cooling to the lowest level in about two years, according to CNBC. The inflation rate is falling as gasoline prices drop, an economics reporter says.

Headline inflation of 4% is the smallest jump since March 2021, marking 11 straight months of a cooldown since the 9.1% peak in June.

Core inflation has now cooled to 5.3% from a high of 6.6%, but May’s reading marks the first official slowdown in four months. pic.twitter.com/NapwMWUl86

— Sarah Foster (@sarahffoster) June 13, 2023

Sarah Foster of Bankrate joins Dave & Dujanovic. They discuss the falling rate of inflation and the next likely move for the Federal Reserve.

According to Foster, the main reason for the slowdown in headline inflation is gas pump prices are down about 20% from a year ago. Additionally, she added that food costs are starting to drop as well.

Wages catching up to inflation rates

Dave pointed out that inflation doesn’t sting as much if wages keep pace.

“Do we have any understanding of what’s going on right now as far as what people are making, and what the wages are in comparison to the inflation?” he asked.

“We kind of had some good news this month because a separate report from the Department of Labor showed that wages have actually climbed 4.3% from a year ago,” Foster said, “That’s the first time since March 2021 that they’ve climbed at a faster pace than overall headline inflation.”

What does the Fed do next?

Since March 2022, the Federal Reserve has hiked interest rates 10 times.

“So what is the Fed to do? Do they take a pause? I think they have a meeting — was it tomorrow? Do they take a pause this week on raising interest rates and see how things flush out in the economy? Or do they dare inch us up a little more?” Debbie asked.

Foster said the consensus among the Fed watchers is that the interest rate will stay where it is for now. The Fed will likely hold off on an interest rate hike on Wednesday to examine the effects of the past hikes on the economy, she said.

“The Fed has been saying that they’re likely going to take a data-dependent approach. They’re going to be making these decisions meeting by meeting. But I think what a pause or skip — whatever you want to call it — at this meeting, what it gives the Fed is at least time to tell how much those rate hikes that they’ve already approved will be impacting the economy,” Foster said.

Related: Why is inflation cooling — and why isn’t it coming down more

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