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Bills in high denominations

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WASHINGTON—May’s inflation rate was at its lowest annual rate in more than two years. The Labor Department says the consumer price index jumped just a tenth of a percent for the month, bringing the annual rate down to 4%. One economist says there’s not as much reason to be optimistic as you might think.

One of the things that’s going on is what’s called a “credit crunch,” says Matt Will, an economist at the University of Indianapolis.

“A credit crunch is a squeeze on the abilities of consumers and businesses to obtain credit,” said Will in a Tuesday interview with Tony Katz Today on 93 WIBC.

Will says the problems go back to when U.S. Treasury Secretary Janet Yellen told banks to stop lending money. He believes that has led to the credit crunch.

“This credit crunch means that it’s harder for you and I to get money. Banks don’t want to lend. The Fed is putting rules in place. They’re concerned about your risk because if there is a recession, you may not pay back your loan,” said Will.

Declines were seen across the board — but food price growth continues to accelerate faster than other categories, climbing 6.7% overall year on year. Food-at-home prices rose 5.8% while prices for food away from home climbed 8.3%. Egg prices, which skyrocketed last year as an avian flu hit US flocks, sank 13.8% from April, marking the largest monthly drop for that category since 1951.

There’s been a decline in the cost of rents and new leases, which could manifest as a slowing in annual shelter inflation during the course of the coming year. That’s according to researchers for the Federal Reserve Bank of Richmond earlier this year.

“If you go read the actual Fed report, which I did, they said expectations for inflation over the next 12 months are still above 4%, but they’re lower than they were a year ago. Two to five year expectations for inflation are higher. The consumer believes that inflation is here to stay for a longer period of time,” said Will.

Will is especially concerned about with what’s going on with car sales.

“We saw this just a few weeks ago when U.S. Auto Sales, one of the largest national used car companies, said we’re no longer going to be in business and have cars in our lots because we can’t get lending. We can’t buy inventory,” said Will.

They announced those closures in April and said they would be temporary.

The Federal Reserve is still hoping to bring down the overall inflation rate to 2%. On Wednesday, it will announce its latest interest rate policy. It is expected to hold the key federal funds rate at about 5% following 10 consecutive rate hikes since March last year.