- The drop in inflation means a soft landing of the economy is “increasingly plausible,” Paul Krugman said.
- The top economist pointed to slowing rent and wage growth, which could mean inflation is coming under control.
- Stock market investors have cheered Thursday’s CPI report, sending the Nasdaq up 6%.
October’s inflation report was surprisingly positive, showing that inflation cooled more than expected in October – and that means a soft landing of the economy is increasingly likely, according to Nobel economist Paul Krugman.
In a Twitter thread on Thursday, Krugman responded to the higher-than-expected drop in the October Consumer Price Index, which showed headline inflation dropping to 7.7% instead of the 8% economists expected. Meanwhile, core inflation accelerated just 0.4%, compared to economists’ estimates for 0.6%.
“A good inflation report,” Krugman wrote. “Monthly data are volatile; still 6% over the past 3 months. But shelter accounts for more than half of that – and [it’s] a lagging indicator,” he said.
He echoed comments from other experts, who pointed out that housing accounts for over half of the CPI, although changes in housing prices take around 18 months to show up in the official statistics. That means inflation could be overstated given plummeting home prices, according to Wharton professor Jeremy Siegel, and Krugman added there was “overwhelming evidence” that growth in rental prices have already started to slow, or even turn negative.
“Between this report and the wage numbers, there is a good reason to believe underlying inflation is coming under control,” Krugman added, referring to the recent drop in wage growth. “A soft landing is looking increasingly plausible.”
Other experts have said inflation has already shown signs of peaking, which could give equities a boost after a brutal market rout this year. On Thursday, stocks soared on the positive CPI news, with the Nasdaq surging 6% and the Dow Jones Industrial Average up nearly 1,000 points.