The Line: Inflation at its Lowest Rate in Over Two Years

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Gregory Heym is Chief Economist at Brown Harris Stevens. His weekly series, The Line, covers new developments to the economy, including trends and forecasts. Read on for the latest report and subscribe here to receive The Line in your inbox.

Today we have a ton to cover, so welcome to the bullet-point edition of The Line.

Inflation at its Lowest Rate in Over Two Years

  • The consumer price index rose just 0.1% in May and is 4% higher than a year ago.
  • At 4%, the annual increase in CPI is at its lowest level since March 2021.
  • Wages are now rising faster than prices. About time that happened!
  • After peaking at 9.1% last June, the annual inflation rate has fallen for 11 straight months.
  • Most of the decline in inflation over the past year can be attributed to a 11.7% drop in energy prices.
  • "Core" inflation—which excludes energy and food prices—is up 5.3% from a year ago. 
  • The money supply—remember inflation is all about the money supply—has fallen 4% this year.
  • To sum up, inflation continues to come down after 10 rate hikes, but remains above the Fed’s 2% target.

The Fed Says, “You’ll Get Nothing and Like it”

  • Yep, I used a Caddyshack reference.
  • After 10 consecutive hikes, the Fed left rates alone this week. While that’s great news, it appears this is only a one-month pause.
  • In their economic projections, the Fed expects two more rate hikes this year. That took most of the fun out of the "no hike this time" announcement.
  • Expect 25 basis point hikes at their July and September meetings.
  • The Fed does expect to cut rates by 1% next year, so we got that goin’ for us, which is nice. (Yep, another Caddyshack reference.)
  • None of this has any direct impact on 30-year mortgage rates.

Retail Sales Unexpectedly Rose in May

  • The 0.3% gain in spending last month is great news, considering most economists were expecting a small decline.
  • This better-than-expected news might make some economists—yours truly included—rethink their recession predictions.
  • Sales rose in all categories except for gasoline stations and miscellaneous store retailers—whatever they are.
  • The decline in sales at gas stations can be attributed to a 5.6% plunge in gas prices last month.
  • Retail sales in May were just 1.6% higher than a year ago, even though consumer prices rose 4% during that period.
  • Since retail sales are not adjusted for inflation, that means that consumers continue to spend more money while getting less stuff.

Way to Go, Denver and Vegas!

  • Congrats to the Nuggets and Golden Knights on winning their first championships.
  • While Vegas only had to wait six years for its first Stanley Cup, Denver has been without a ring since joining the ABA in 1967. Those of you who’ve never heard of the ABA can read about it here.
  • As a Rangers, Jets, and Knicks fan, I know what it feels like to root for teams that rarely win.
  • When asked if he was looking forward to a championship parade, Nuggets superstar Nikola Jokic said, "No. I need to go home."
  • I can also relate to people who just want to finish their job and go right home, but then again, no one has offered me a parade yet.

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