Closely Watched CPI Inflation Report Comes In Lower Than Expected, Economist Krugman Claims ‘Inflation Has Basically Been Defeated’

The closely monitored Consumer Price Index (CPI) inflation report for May 2024 came in lower than anticipated, prompting Nobel laureate economist Paul Krugman to declare that “inflation has basically been defeated.”

The latest data from the U.S. Labor Department revealed that consumer prices remained flat in May, confounding economists who had expected a slight increase. Over the year ending in May, consumer prices rose by 3.3 percent, a mild deceleration from the 3.4 percent annual rate recorded in April. Core inflation, which excludes volatile food and energy prices, also showed a notable cooling, increasing by 3.4 percent over the same period, Reuters reported.

Following the release of the CPI report, the stock markets responded positively. The S&P 500 and Nasdaq posted record closing highs for the third consecutive day, buoyed by the softer-than-expected inflation data. However, both indexes ended the day off their highs as the Federal Reserve announced its decision to leave interest rates unchanged and projected only one rate cut for the year, down from the previously anticipated three.

Jerome Powell, the Chair of the Federal Reserve, reiterated the central bank’s cautious stance, stressing that while inflation has eased, the Fed remains on the lookout. “So far, the data has not given us that greater confidence,” Powell stated, highlighting that the Fed would need more sustained evidence of declining inflation before making further rate cuts, ABC News reported.

Despite the Federal Reserve’s cautious approach, the sentiment among economists is increasingly positive. Paul Krugman, known for his insightful economic analyses, confidently stated that “inflation has basically been defeated.” This sentiment was echoed by other experts who pointed out that the prolonged period of high interest rates has successfully curbed inflationary pressures without derailing economic growth.

Besides the CPI report, a robust jobs report released earlier this month surpassed expectations. On top of this, the average hourly wages surged by 4.1 percent over the year ending in May, outpacing the rate of inflation and indicating increased spending power for workers.

Paul Krugman (Photo via Great Minds)