John Anthony, filling in for Dan Proft, opened the show reviewing the latest Consumer Price Index report, which showed headline inflation falling four tenths of a percent month over month, well below the modest increase economists had forecast, and annual inflation dropping to 3.5 percent from 4.2 percent the previous month. Core inflation, which excludes volatile food and energy prices, held flat for the month and came in at 2.6 percent annually, also below expectations.
Anthony welcomed Ryan Young, senior economist and director of publications at the Competitive Enterprise Institute, to help explain why the reading surprised much of Wall Street and what it means for ordinary households. Young said the improvement was driven almost entirely by falling energy prices tied to a temporary de-escalation around Iran, which allowed more oil to move through the Strait of Hormuz, and cautioned that the underlying core inflation rate remains above the Federal Reserve’s 2 percent target. He said the Fed has no control over geopolitical events or tariffs, but does control the money supply, which he described as the primary driver of the broader price level over time.
Young explained the distinction between the inflation rate and the actual level of prices, noting that even a slowing inflation rate still means prices continue to rise, just more slowly. He said the dollar has lost roughly a quarter of its value over the past five years due to pandemic-era monetary expansion, and warned that attempting to force prices back down to pre-pandemic levels would require a destructive bout of deflation. He also cautioned that a stable, predictable inflation rate, even if imperfect, is easier for households and businesses to plan around than one that fluctuates unpredictably.
Much of the interview focused on how much of the recent improvement was driven by energy markets specifically. Young noted that overall energy prices fell nearly six percent in June and gasoline prices dropped almost ten percent, but said energy costs remain up more than 15 percent over the past year due largely to instability tied to Iran, and predicted prices at the pump are unlikely to return to pre-conflict levels until markets see sustained stability in the region. He downplayed the role of commodity speculators in driving those price swings, arguing that underlying supply and demand fundamentals dominate their influence.
Young also distinguished between what he called underlying monetary inflation, driven by growth in the money supply relative to real economic output, and price increases caused by discrete events like tariffs or supply disruptions. He said the Federal Reserve’s roughly five trillion dollar expansion of the money supply during the pandemic continues to work its way through the economy, and argued that while textbook models predict tariffs cause only a one-time bump in prices, real-world behavior by companies spreading out price increases over time complicates that picture.
Closing the interview, Young addressed newly installed Federal Reserve Chairman Kevin Warsh’s recent testimony to Congress, in which Warsh pledged to make the inflation surge of the past five years “a thing of the past” and emphasized that getting monetary policy right remains the Fed’s top priority. Young said early signals from Warsh’s approach to fighting inflation are encouraging, though he noted it remains to be seen whether Warsh will maintain independence from White House pressure for lower interest rates. Anthony closed by suggesting that the trajectory of gas and grocery prices heading into the fall could weigh heavily on how voters approach the midterm elections.