ARLINGTON, Va.—Two credit union economists are offering their interpretations and forecasts after new data was released showing inflation did not moderate in August to the degree expected, a surprise to many analysts and a disappointment to many, including consumers.
As a result, economists say it’s a certainty the Fed will raise rates when it meets later this month, with the only question being whether it will be by 75 basis points or a full percentage point.
The Consumer Price Index was up 8.3% in August from one year earlier, compared to 8.5% in July. The number remains high even though gas prices have declined.
On a seasonally-adjusted basis, overall consumer prices rose 0.1%, the Bureau of Labor Statistics reported.
“While gas prices declined by 10.6% and dominated news headlines, shelter, food and healthcare costs continued to rise,” said NAFCU Chief Economist and Vice President of Research Curt Long. “The cost of shelter rose 0.7% in August, which is the highest monthly growth rate in over 30 years.”
Energy prices fell by 5.0% during the month. From a year ago, energy prices were up 23.9%. Additionally, food prices climbed 0.8% in August and are up 11.4% compared to this time last year, the CPI data show.
“Food price growth fell slightly to its slowest pace of 2022, but it still registered a sturdy +0.8%,” noted Long. “Stripping out food and energy, core inflation growth accelerated to 0.6% in August.”
Year-over-year core CPI growth was 6.3%.
"Where a day prior to the release there was still a minority of market participants expecting a 50-basis point hike from the Federal Reserve next week, that bet evaporated with this report. NAFCU’s expectation of a 75-basis point hike remains the median market view, and there is even an outside possibility of a full percentage point hike,” concluded Long.
CUNA: Expect a Rate Increase
CUNA’s senior economist, Dawit Kebede, added, “Core inflation, prices excluding food and energy, rose in August.
The increase in new car prices indicates continued shortages with production and labor; the auto sector is struggling to bring output back to its pre-pandemic level. Currently, there is a gap of three-million in total vehicle sales compared to 2019. The index for shelter increased by 0.7 percent in August. High housing prices observed in the last year continue to show up in the consumer price index.
“Despite indications of a slow-down in headline inflation in the last two months, it is still much higher than the Federal Reserve's target of 2%. The Federal Reserve Open Market Committee is expected to raise rates by another 75 basis points during their meeting this month,” Kebede continued. “This raises the target rate between 3% - 3.25%. The economy is heading into a more restrictive interest rate environment with two more expected hikes in November and December.”