CUNA and NAFCU economists say reports early next month on jobs and inflation will influence the size of the Fed’s next rate hike.

Lower prices for gasoline and other energy helped slow inflation in July, but a CUNA economist said Wednesday that the Fed will want to see another set of reports on jobs and prices before deciding how much to raise rates at its next meeting.

The U.S. Bureau of Labor Statistics reported Wednesday that its seasonally adjusted Consumer Price Index showed no change from June to July and was up 8.5% from a year earlier. In June it was up a record 9.1% from a year earlier and up a seasonally adjusted 1.3% from May.

For credit union members, prices were up on the items that require their greatest borrowing: homes and cars, with the notable exception of used cars.

NAFCU Chief Economist Curt Long said July had the slowest month-over-month growth in prices since April 2020. Excluding food and energy, he said core inflation slowed considerably from June’s 0.7% growth to 0.3% in July.

Curt Long

“The CPI report was excellent and comes as welcome relief from the under-fire Federal Reserve,” Long said. “Markets are fairly evenly split on whether to expect a 50- or 75-basis point hike from the FOMC in September, and that question will most likely depend on the incoming data over the next month.”

CUNA Senior Economist Dawit Kebede said the overall monthly price change remained flat in July as falling gas prices offset increases in food and shelter prices. Core inflation was lower than expected because of price declines for airfare, used cars and clothing.

However, Kebede said housing prices, which comprise a third of the CPI basket, rose at an annual 6% rate in July.

Dawit Kebede

“There is a lag up to 18 months between house price increases and its full inclusion in the CPI measure. Hence, we will see more increases in shelter CPI in the coming months,” Kebede said.

The National Association of Realtors will release July sales and prices for existing homes Aug. 18. June marked the fifth month in a row of sales declines, but prices continued to rise.

The median existing single-family home price was $423,300 in June, up 13.3% from June 2021. The median existing condo price was $354,900 in June, an annual increase of 11.5%.

The U.S. Bureau of Economic analysis reported Aug. 3 that new vehicles sold in July at a seasonally adjusted annual rate (SAAR) of 13.3 million, down 9% from a year earlier and up 2.6% from June.

Cox Automotive reported Wednesday that the average transaction price for a new car was $48,182 in July, up 11.9% from a year earlier and up 0.3% from June.

It announced Aug. 5 that wholesale used-vehicle prices, which are adjusted for mix, mileage, and seasonality, fell 0.1% from June to July. Its Manheim Used Vehicle Value Index fell 12.5% from a year ago.

Cox Automotive estimated that used retail sales fell 13% from June to July, and that used retail sales were down 16% from July 2021. Compared to 2019, sales were down 29%, which was the worst comparison against 2019 since January.

Dealers held an estimated 48 days’ supply of used cars on July 31, down from 52 days from June 30 but up from 41 days in July 2021.

The Fed’s Open Market Committee (FOMC) meets three more times this year. Kebede has said he expects to raise the federal funds rate to 3.4% by year’s end.

Before the FOMC’s next meeting Sept. 20-21, Kebede said the “data-driven Federal Reserve” will have had time to digest the August jobs report to be released Sept. 2, and the August inflation report to be released Sept. 13.

“We had a strong jobs report and growing wages earlier this week that could potentially signal another aggressive rate hike from the Federal Reserve,” he said. “However, this inflation report indicates slowing down in some areas despite visible price pressures in others.”

Jim DuPlessis
CUToday