Editor’s note:  Dr. Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University and is a frequent contributor to WRAL TechWire. The following analysis was provided to TechWire following a request for his take on the news. 

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RALEIGH – The year-over-year May inflation rate was 4%, down significantly from the 4.9% year-over-year rate in April.  An 11.7% year-over-year drop in energy prices was a key reason for the good news.

However, as with most statistics, there is some cautionary news in the background.  On a month-to-month basis, May average prices were 0.1% higher than April average prices.  Also, year-over-year food prices were up 6.7%.  And, the inflation index preferred by many economists, which excludes volatile food and energy prices, was up 5.3% year-over-year, although this was still lower than the comparable April rate.

Mike Walden (NCSU photo)

[Measured year over year, inflation slowed to just 4% in May — the lowest 12-month figure in over two years and well below April’s 4.9% annual rise. The pullback was driven by tumbling gas prices, a much smaller rise in grocery prices than in previous months and less expensive furniture, air fares and appliances, The Associated Press reported.

[Tuesday’s inflation figures arrive just as Federal Reserve officials begin a pivotal two-day meeting, after which they’re expected to leave interest rates alone after imposing 10 straight rate hikes dating back to March 2022. On Wednesday, the central bank will likely announce that it’s skipping a rate hike but may hint that it will resume raising rates as soon as July. Top Fed officials have said they’re leaning toward a so-called “skip” to allow time to assess how their rate hikes have affected inflation and the overall economy.]

Walden’s conclusions

There are three important conclusions from this report. First, there has been good progress on reducing the inflation rate.  But remember what this means. Average prices are still rising, but just more slowly.  Those households who are not seeing comparable increases in their earnings are still economically falling behind.

Second, today’s improved inflation report may have been just what the Fed needed to pause their interest rate hikes when they meet over the next two days.  But even if a pause does occur, it doesn’t necessarily mean the Fed is done raising rates.

Third, there are always factors that could derail the reduction in the inflation rate.  An example is the current workers’ strike at west coast ports.  Could this cause another supply-chain interruption that results in the prices of many products to rise?

Bottom line:  enjoy the good news, but don’t celebrate yet.