The Consumer Price Index (CPI) remains unchanged in May, signaling that disinflation may be underway. Mastercard Economics Institute Chief US Economist Michelle Meyer joins Morning Brief to discuss the May CPI report and what it indicates about the consumer.

"I would say that the consumer is empowered right now. We're here right now at our annual conference for Mastercard, the Mastercard Connections Conference, where we're talking to our biggest clients about the state of the consumer, about what they're seeing on the ground. And it's very clear that the consumer is still engaged, they are still spending, but they are empowered. They're making choices in how they want to deploy their purchasing power. And I think that's showing up in the inflation data that we saw today as well," Meyer tells Yahoo Finance.

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This post was written by Nicholas Jacobino

Video Transcript

All right.

Well, further declines in energy prices and a slight slow down here in Shelter contributing to the cooling inflation print.

But what is this all signal for the consumer we want to bring in Michelle Meyer, Mastercard Economics Institute Chief us economist.

Joining us now Michelle, it's great to see you.

So first, just your quick reaction here to this cooler than expected inflation print.

And what exactly do you think this does ultimately to the timing if anything to the timing of the fed's first cut?

Well, we certainly saw some easing of inflation pressures across the board.

Um So goods inflation continuing to ease car prices was a big one that saw some relief services.

Inflation remains a bit stickier, particularly around owners equivalent rent so that shelter component is coming in.

Uh uh you know, a bit higher here.

Um But generally speaking, it's an economy that is seeing a moderation in it's not sudden, it's not immediate, but it is trending in the direction that the Federal Reserve wants to see.

Are we at success yet?

No.

And I think that's what we'll hear from Fed Chair Powell later this afternoon, which said there's more work to be done to get back to an equilibrium, to get back to target.

But the direction of travel is now a lot more encouraging than certainly it was.

Um in the first quarter of the year, more data on how the consumer is feeling, the confidence, the sentiment essentially.

And we were speaking to the conference board chief economist Dana Peterson, uh another good friend of the show as you are as well, who was telling us about how she's defining the consumer battle weary.

How would you after this inflation print define the consumer?

I would take a different approach.

I would say that the consumer is empowered right now.

We are here right now at our annual conference for mastercard, the mastercard Connections Conference where we're talking to our biggest clients about the state of the consumer, about what they're saying on the ground.

And it's very clear that the consumer is still engaged, they are still spending, but they are empowered, they're making choices and how they want to deploy their purchasing power.

And I think that's showing up in the inflation data that we saw today as well where there's more choice where there's a greater ability to find promotions and bargains the consumers looking for that.

And some of the deflationary pressures we're seeing around some of these goods categories for experiences, particularly once in a lifetime experiences.

There's lots of price tolerance still out there and the consumer support in terms of the labor market is continuing to expand Michel.

Do you think that trend is going to shift though?

We do keep rates as restrictive as they are today?

I guess, at what point maybe do you expect or if at all, do you expect to see any sort of deterioration then there?

Well, look, I think the economy is continuing to transition away from this highly unusual period that we were in coming out of the pandemic.

So I don't think we found our new, new normal for the economy or it's kind of equilibrium.

So we are going to continue to evolve.

There's still lots of changes that are happening in terms of the share of the consumer basket.

But the Federal Reserve has been very clear that they are on path to ease monetary policy.

They are going to be normalizing policy which does mean lower interest rates in the future.

The timing of that is a bit to be determined.

We'll hear more from Fed Chair Powell today, but more likely or not, they are on track to be cutting interest rates before the end of the year.

Michelle.

I wonder what you make of the rate at which consumers are tapping into credit cards versus deploying cash.

Yeah, so we have certainly seen a lot of changes in terms of um how consumers are purchasing when the pandemic first occurred.

There was lots of extra cash out there.

We had all excess savings that we talked about and there's a lot more debit card usage.

Um and then that changed where there was more credit card usage of the last 2.5 years or so.

So, if you look at the Federal reserve, that credit card debt outstanding is certainly increased, but on trend basis, it's not that different than where we might have been all sequel if we didn't have all these gyrations coming out of the pandemic.

Um So I think you need to consider kind of big picture of where the underlying trend is in terms of credit card debt outstanding.

Um and then where we're going after that and it overall debt service, right?

If you think that overall debt service is a percent of disposable income on aggregate is still pretty well managed, Michelle.

I'm curious what you make of some of the debate around whether or not elections are going to play into the Feds timing the risk of that.

That was something that was brought up a couple of times uh earlier here in the show when we were talking to our last panel, is this something you're factoring in or I guess is something that you view as influencing the timing of that first rate cut at all?

I'm sure that Powell is going to be asked that question this afternoon.

So we here he has to say he's been asked that regularly and all his recent speeches.

But look, I think they are very clear in their message, which is that they are looking at the balance of all the data out there and trying to conduct policy the best way possible, which means that they are trying to make sure they get to a stable economy with low and stable inflation and they're taking into account the economic data and they're taking into account the environment around them in terms of making those, those decisions.

Does it seem like a consumer that is going to wait or, or be perhaps more conscious about their spending right now until they see that rate cut?

It doesn't appear to be.

I mean, it feels like to me, the consumer is being mindful of how they're deploying their purchasing power.

They are aware of where borrowing costs are, of course, but I don't think that's the main driver for consumers.

The main driver is their path of income, right?

What is their purchasing power look like which is defined by the rate of job creation?

And right now, aggregate wage growth running at between 4.5 to 5% depending what measure you look at is running above underlying CP I, so I think that's what matters the most for consumers right now.