WASHINGTON–Two credit union economists said they see little choice but for the Federal Reserve to take more rate-raising action following new inflation numbers.
According to the Labor Department’s Consumer Price Index, prices climbed 8.6% in the year through May, reflecting a reacceleration of prices and putting more pressure on consumers when it comes to everyday purchases. The numbers also represent new challenges for both the Federal Reserve, which will meet next week, and White House.
The Consumer Price Index climbed 1% from April — far more quickly than in the previous month — and by 0.6% after stripping out food and fuel prices, which can be volatile.
All Categories See Increases
“Consumer prices remained elevated in May in line with consensus expectations,” said CUNA Senior Economist Dr. Dawit Kebede. “Price increases were evident in all major categories with housing, energy, and food prices contributing the most. Used car prices went up last month after showing a decline in the previous three consecutive months.
“Oil prices also increased in May and are expected to remain elevated amid high summer travel demand and low supply due to the Russia-Ukraine war,” Kebede continued. “The price of brent crude oil is trading above $120 a barrel -- 30% higher prior to the start of the war. People are feeling these higher prices when they are filling their tank. A persistent increase in oil prices also has a cascading effect on prices of other commodities and services because oil represents a big portion of production costs.
“The Federal Reserve Open Market Committee (FOMC) is expected to increase the interest rate by another 50-basis point when they meet next week. This will reduce inflationary pressure by slowing consumer demand,” Kebede added. “However, it has little effect on influencing prices caused by supply shortages such as oil.”
A ’Surprise’
“Inflation surprised to the upside in May, placing more pressure on policy makers,” said NAFCU Chief Economist Curt Long in his response to the latest data. “Energy was a key contributor, both as a consumer good and as an input in other areas that saw strong growth, like airfares. But price gains were strong across the board. Credit unions should be prepared for more hawkish talk from Fed officials and the related market impacts, but they will continue delivering low-cost financial services at a time when it’s increasingly important to everyday Americans.”
As CUToday.info reported here, CUNA Mutual Chief Economist Steve Rick has also offered a forecast for inflation.