ROB SCHMITZ, HOST:
Let's turn to inflation and some encouraging news this morning. Consumer prices rose less than expected last month and less than they did in April. The cost of living report from the Labor Department comes just in time for a Federal Reserve meeting today where the Central Bank is expected to hold interest rates steady. NPR's Scott Horsley has been tracking the Fed's campaign to curb inflation. He joins us now. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Rob.
SCHMITZ: So this seems like good news in this report for a change. What's it telling us?
HORSLEY: Yeah, it is good news. It tells us that while prices are still climbing, they're not going up as fast as they had been. Consumer prices in May were up 3.3% from a year ago. That's a smaller annual increase than the month before. Last month, rising rents and restaurant prices were partially offset by a sharp drop in gasoline prices. Grocery prices were also flat in May. So inflation is moving in the right direction, although it's still higher than the Federal Reserve would like. Joe Brusuelas, who's chief economist at the big accounting firm, RSM, says, we're just going to have to be patient.
JOE BRUSUELAS: It's just going to be a slow grind in terms of how much inflation cools on a month-to-month basis back towards the long-term 2% target.
HORSLEY: And that means the Federal Reserve is also likely going to be patient and go slow and keep interest rates higher for longer until policymakers are confident that prices are under control.
SCHMITZ: Well, on that note, when are - when do you think we're going to catch a break on interest rates?
HORSLEY: Yeah. That's what anybody who wants to buy a house or finance a business or is just carrying a balance on their credit card wants to know. After this better-than-expected report this morning, markets are betting the Fed will start to cut interest rates in September. But if inflation remains elevated over the summer, it could take longer than that. Back in March, Fed policymakers were predicting, on average, that we would get three quarter-point interest rate cuts this year. We'll get an update on that forecast this afternoon, and it's going to be very closely watched.
SCHMITZ: As we all know, it's an election year. How is all of this impacting voters' attitudes about the economy?
HORSLEY: Well, one thing we know is people really, really dislike inflation. Earlier this week, The Wall Street Journal reported on some research out of Harvard that found people think a 1% jump in inflation is twice as bad as a 1% jump in unemployment.
SCHMITZ: Wow.
HORSLEY: Now, if you're the one who's out of work, you might disagree with that assessment, but the thing is, everybody is affected by rising prices, those who are working and those who aren't. So it is certainly good to see inflation cooling in this morning's report. And economist Brusuelas thinks we'll see more of that during the summer and early fall. Keep in mind, though, falling inflation just means prices level off. It doesn't mean they go back to where they used to be.
BRUSUELAS: By the time we get to Election Day, people are going to feel a lot better about inflation. But they're still going to be angry about the price shock and elevated financing costs. Those things are simply not going to go away.
HORSLEY: Luckily, we still have very low unemployment. It's been at or below 4% for 30 months in a row now. Thanks to that tight labor market, we're still seeing pretty good wage gains. Wages have been going up faster than prices for over a year now, so people's paychecks are stretching further. The only thing is, if wages keep going up rapidly and people keep spending that money freely, well, it could be harder for the Fed to get inflation under control.
SCHMITZ: That is NPR's Scott Horsley. Thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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