Inflation is decreasing and price reductions will prevent a wage-price spiral now

(Joseph, Chief Economist and Principal, RSM US LLP, A member of the Wall Street Journal’s forecasting panel and the UCLA Anderson School of Management's Board of Directors, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions, “Inflation relief in the pipeline as food, gas and service prices ease,” pg online @ https://realeconomy.rsmus.com/inflation-relief-in-the-pipeline-as-food-gas-and-service-prices-ease/ //um-ef)

Top-line U.S. inflation is moving back toward levels where it is appropriate for the Federal Reserve to pause in its efforts to restore price stability. With underlying inflation hovering around 3% and 4%, the Fed is well positioned to keep its policy rate steady this week with the confidence that top-line inflation and drivers of core pricing are likely to ease notably in the coming months. Inflation increased by 0.1% on a monthly basis in May and was up by 4% on a year-ago basis while core inflation advanced at a 0.4% rate on the month and by 5.3% from a year ago. Excluding food, energy and shelter, inflation increased by 0.3% monthly in May and was up by 3.4% from a year ago. The decline in overall inflation in May was driven by a 3.6% drop in energy costs, which have now fallen by 11.7% from a year ago, and by a 5.6% decline in gasoline prices, which are down by 19.7% over the past year. The policy-sensitive service inflation excluding housing, or the so-called super-core metric, increased by 4.6% on an annual basis. Perhaps more encouraging is the near-term progress in the service sector. While service sector inflation, which comprises 61.5% of the index, advanced by 6.3% from a year ago, the monthly increase was 0.2% and the three-month average increase was 2.6% . That implies that there is relief in the inflation pipeline in the area of the economy where inflation is stickiest and closely associated with wage demands. If policymakers concerned with risk of a wage-price spiral were looking for relief, it is staring at them inside the data.