Inflation is cooling but not fast enough for the Fed

It was a double whammy for economic data enthusiasts.

During the morning of June 12, 2024, the Bureau of Labor Statistics published its latest inflation figures. The news was relatively good, showing that inflation rose 3.3% in the year to May 2024 – less than some analysts had expected.

A few hours later, the Federal Reserve concluded its June meeting by holding interest rates steady – as forecasters expected – and releasing an updated set of economic projections.

What does it all mean? The Conversation US asked economist Christopher Decker to explain.

What are your major takeaways from the latest inflation report?

The May inflation rate – as measured by the Consumer Price Index for All Urban Consumers, or CPI-U – was down a bit from April, but not by much. Basically, this implies that not much changed on the inflation front, and it’s been like this for a while now.

This isn’t a bad thing, though. I like to take the long view: US inflation has really stabilized around 3.3%. In fact, we’ve been around 3% to 3.7% for 12 months now. So we have stable price growth – even if it’s higher than the Fed’s target rate of 2% – as well as wage and job growth. This economy is still quite strong.

In terms of the details, energy prices are down compared with last month – but energy prices tend to be volatile, so that might be a blip in the data, not a real trend. Labor markets are still tight. Average hourly earnings rose 4.1% this May compared to last year, indicating that employers need to pay higher wages to attract new workers and retain existing ones.

In May, inflation-adjusted earnings increased 0.5% from April to May of this year. So with wages outpacing inflation, consumer spending – which amounts to two-thirds of American