Paul Krugman Hints At Disinflation Era Kicking In: 'It Just Got Even Harder To Be An Inflation Pessimist'

On Friday, noted economist Paul Krugman tweeted a message that should catch the attention of market participants.

What Happened: “It just got even harder to be an inflation pessimist,” Krugman said. Price data is continuing to show disinflation, he added.

In making his case, the economist quoted a tweet about the Bureau of Labor Statistics' personal income and spending data. The inflation reading of the report, namely the annual rate of the core personal consumption expenditure index, fell from 4.6% in May to 4.1% in June. The metric is the Fed's favorite inflation gauge.

Personal consumption expenditure rose 3% year-over-year in June, the smallest rate of increase since March 2021, the economist noted. The annualized 3-month and 6-month rates were at 2.5% and 3.3% respectively, he added.

Krugman also pointed to the wage data, which showed that wages and salaries climbed less than 4% year-over-year in the second quarter.

See Also: Best Inflation Data

Inflation, therefore, has been on the wane especially when spending and wages are considered, he said.

Why It's Important: The Federal Reserve's rate-setting committee, the Federal Open Market Committee, met this week and raised the interest rate by 25 basis points to a 22-year high of 5.25%-5.50%. Fed Chair Jerome Powell said in a press conference that the future rate trajectory will depend on the economic data that comes in.

Krugman said he believes that “underlying inflation looks as if it’s fallen to ~3% without any rise in unemployment (and with overall employment, adjusted for age, at its highest level ever).”

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Photo: World Trade Organization via flickr