NAFCU - Record Inflation Puts Pressure on Fed, CUs Should 'Be Prepared'

NAFCU Chief Economist Curt Long said credit unions should brace for more aggressive action from the Fed this year in the wake of Friday’s report that inflation hit a 40-year high in May.

“Inflation surprised to the upside in May, placing more pressure on policy makers,” Long said.

The U.S. Bureau of Labor Statistics reported that inflation rose 8.6% from May 2021 to May 2022, the largest 12-month gain since December 1981. The largest price jolts were for shelter, gasoline and food.

“But price gains were strong across the board,” Long said. “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.”

Curt Long

Inflation from April to May was a seasonally adjusted 0.3%. After declining in April, the energy index rose 3.9% over the month with the gasoline index rising 4.1%.

CUNA Senior Economist Dawit Kebede said brent crude oil is trading above $120 a barrel — 30% higher than before Russia invaded Ukraine.

Kebede said the Fed’s Open Market Committee is expected to increase the interest rate by another 50-basis point when it meets in the coming days. “This will reduce inflationary pressure by slowing consumer demand. However, it has little effect on influencing prices caused by supply shortages such as oil.”

Dawit Kebede

The BLS reported that its energy index rose 34.6% over the last year — the largest 12-month increase since the period ending September 2005. The food index increased 10.1% over the 12 months — the first increase of 10% or more since March 1981.

Jim DuPlessis

A journalist for decades.