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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

On Friday, noted economist, Nobel laureate, and author 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,” said Krugman. “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,” said Krugman. 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.

A businessman holds an Investment Masters Symposium during the twentieth anniversary of the Money Show Convention held in Orlando, Florida. Economist Paul Kruger says inflation has been on the wane especially when spending and wages are considered. MARK PETERSON/CORBIS VIA GETTY IMAGES.

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

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

Why It’s Important: The Federal Reserve’s rate-setting committee and 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).”

Wikipedia reports that in 2008, Krugman was the winner of the Nobel Memorial Prize in Economic Sciences for his contributions to New Trade Theory and New Economic Geography. 

The Prize Committee cited Krugman’s work explaining the patterns of international trade and the geographic distribution of economic activity, by examining the effects of economies of scale and of consumer preferences for diverse goods and services.

Produced in association with Benzinga

Edited by Priscilla Jepchumba and Judy J. Rotich

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