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Eggs are cheaper now, but inflation isn't where the Federal Reserve wants it to be

AILSA CHANG, HOST:

A sharp drop in the price of eggs helped push inflation to its lowest level in more than two years last month. But don't expect the hard-boiled watchdogs at the Federal Reserve to relax just yet. Some of the details in today's inflation report were less encouraging. NPR's Scott Horsley has more. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good afternoon.

CHANG: Good afternoon. OK. Let's start with the good news here. The annual inflation rate in May was 4%. That's less than half of what it was last summer. What's behind that improvement?

HORSLEY: Yeah. When inflation hit a four-decade high last summer, gasoline and groceries were some of the biggest culprits, and we're starting to see that unwind a little bit. The gas prices have come down about 20% from a year ago. Grocery prices are still elevated but not by double digits as they had been. And as you mentioned, egg prices, which skyrocketed last year when avian flu wiped out a lot of laying hens, have now come back to Earth. Egg prices tumbled almost 14% just between April and May. That's the sharpest one-month drop since 1951. Marc Dresner, who's with the American Egg Board, says farmers are still keeping a lookout for the bird flu, but flocks have largely recovered.

MARC DRESNER: We have more than 300 million egg-laying chickens in the United States. That's nearly a bird for every American. So the egg supply is robust. I'd say it's a good time to be an egg lover.

CHANG: I am an egg lover.

HORSLEY: We're also talking about the month after Easter. So demand for eggs is down a little bit. And airfares were also down last month. That's thanks in part to falling jet fuel prices.

CHANG: OK, cool. That's good news at the gas pump, good news at the grocery store. But the broader inflation picture is not quite so rosy, right? So what's going on there?

HORSLEY: Yeah. Gas and grocery prices get a lot of attention, but they also tend to bounce up and down a lot, which can be distracting. To get a sense of the underlying trend, economists will often look past those erratic food and energy prices and focus on what's happening with everything else. And that so-called core inflation rate is not offering quite so much relief. It was 5.3% in May, down only slightly from the month before. Core inflation is being propped up by things like rising rents and the price of used cars. Those may level off eventually, but it's taking a while.

CHANG: I see. OK. Well, I understand that this inflation report is coming just as the Federal Reserve is meeting to decide what to do with interest rates, right? The Fed is set to announce its decision tomorrow afternoon. So, Scott, what are we looking for there?

HORSLEY: You know, the Fed's already raised interest rates at its last 10 meetings in a row. It's trying to put the brakes on inflation by making it more expensive for people to borrow money in hopes that will cool off demand. It's the most aggressive series of rate hikes in decades, and even before today's inflation report, investors were expecting the Central Bank to take a breather at this week's meeting and leave its benchmark rate unchanged. Now, that's all but guaranteed after today's encouraging inflation headline. But chief economist Kathy Bostjancic of Nationwide says given how stubborn the core inflation figure is, there could still be more rate hikes in the future.

KATHY BOSTJANCIC: The Fed is far from calling victory on the inflation front, and I think you'll hear that from Chairman Powell. He's going to express that they still remain vigilant and concerned about inflation. And if need be, they will raise rates again, maybe as soon as July.

HORSLEY: You know, the Fed's goal is to get inflation back down to 2%, where it was for decades before the pandemic and the war in Ukraine. And while inflation has come down a lot from that four-decade high last summer, it's still well above the 2% target. So we're not out of the woods just yet.

CHANG: Not just yet. That is NPR's Scott Horsley. Thank you so much, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.