Paul Krugman Asks If June Inflation Print Is Just 'Another Head Fake' Or Real: 'History Makes Me Nervous'

The June inflation report came in softer than expected and raised hopes of pricing pressure beginning to inflect lower. Economist and Nobel laureate Paul Krugman offered his take on the numbers through a series of tweets.

What Happened: “It's nice to see economists squabbling over who gets credit for declining inflation as opposed to who gets blame for rising inflation,” Krugman said.

Delving on his takeaways from the data, the economists said the number could be "another head fake." There could be something about the seasonal adjustment factors and it will likely be upwardly revised to make things look less rosy, he said.

“Probably not, given all the private surveys, but history makes me nervous,” he added.

Assuming the news is real, the soft June numbers suggest a lot of inflation was due to the temporary result of the pandemic-related disruption, Krugman said, adding it could be now “fading away.”

Another takeaway is that the cool-off of demand could sharply reduce inflation without a noticeable rise in unemployment, the economist said. “At full employment, the Phillips curve is very steep,” he added.

There could be some truth to both assumptions, namely transitory impact and inflation reducing due to cooling off of demand, the economist said. He does not think the Fed was wrong to raise rates. Given the economy's surprising resilience, the central bank may even need to keep them high, he said.

“But there's now a very strong case for pausing and looking around.”

See Also: Best Depression Stocks

Why It's Important: The 0.2% month-over-month rise in inflation, pushed the annual rate to 3%, the slowest since March 2021. Additionally, core inflation which excludes energy and food prices, edged up 0.2% in June, the smallest gain since Aug. 2021.

The biggest contributor to the month-over-month increase is the shelter cost, which accounted for roughly 70% of the increase, said LPL Chief Economist Jeffrey Roach. LPL Financial's Chief Global Strategist Quincy Krosby said, “The cooler print across the board underscores that inflation is edging lower, but the core remains “sticky,” although also cooling but not fast enough for the Fed to declare victory.”

Even after the inflation data, the futures market is pricing in a 92.4% probability of a 25 basis-point hike to the Fed funds rate to 5.25%-5.50% in the July meeting.

Read Next: Paul Krugman Smacks Down ‘Recession Truthers’ Led By Elon Musk As ‘Crypto Cultists’

Photo via WTO on Flickr