As inflation sets another record high in June, impact on CUs obscured

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NAFCU chief economist Curt Long said Wednesday’s report that inflation rose 9.1% in June could lead the Fed to consider raising rates by a full percentage point at its meeting on 26 and 27 July.

The US Bureau of Labor Statistics (BLS) reported that inflation rose 1.3%, seasonally adjusted, from May to June, and 9.1% from June 2021 to June 2022, or the largest 12-month gain since November 1981. In May, the 12-month gain was 8.6%, the largest since December 1981.

Excluding energy and food, inflation rose 5.9% from a year earlier and 0.7% seasonally adjusted from May.

“Inflation was higher than expected in June and accelerated even after food and energy prices were suppressed,” Long said.

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The BLS reported that rent rose 0.8% from May to June, the largest monthly increase since April 1986, while the equivalent of the owners’ rent index rose 0.7%.

Other components of inflation included:

• Gasoline, which was up 59.9% from a year earlier, and 11.2% seasonally adjusted from May.
• Food, which was up 12.2% from a year earlier and 1% seasonally adjusted from May.
• New cars, which were up 11.4% from a year earlier, and 0.7% seasonally adjusted from May.
• Used cars, which were up 7.1% from a year earlier, and 1.6% seasonally adjusted from May.

CUNA senior economist Dawit Kebede said the 9.1% gain was above consensus expectations. While a broad category of items contributed to the surge, he said energy prices were behind half the rise since May.

“There are signs that some of the main drivers of inflation are easing, such as the drop in oil and other commodity prices in July, slowing wage growth and easing pressures on the chain. supply,” Kebede said. “However, service price increases driven by housing and pent-up demand for vehicles will keep inflation high in the coming months.”

Dawit Kebede

“There is a better chance that the Federal Reserve will raise interest rates by 75 basis points or more by the end of the month, given a strong jobs report, widespread price increases and high inflation expectations,” Kebede said.

Long agreed that price growth could slow in July given the recent drop in gasoline prices and slowing wage growth, “but the Fed is focusing on actual inflation data, not guesswork “.

“The June data leaves no doubt that the FOMC (Federal Open Market Committee) will raise the target federal funds rate by 75 basis points later this month and even put a 100 basis point hike on the table,” Long said.

Long says the impact of inflation on credit union revenues is still ambiguous.

“Rising inflation has already led to higher interest rates, which supports credit union income as they earn a return on their investments and loans,” Long said. “But inflation also prompts the Federal Reserve to tighten policy, which slows the economy and hurts overall loan demand.”

“It’s still important to note that credit unions have always had a tradition of making loans, especially mortgages, where other lenders don’t,” he said. “Mortgage origination activity, however, has fallen sharply in recent months.”