According to Moody’s Analytics chief economist, inflation is forcing Americans to spend $709 more a month on essential goods and services than they did two years ago.
“The high inflation of the last two years has caused great economic damage,” says Mark Zandi tweeted on Friday after the release of the Consumer Price Index – a closely watched measure of inflation that measures changes in the cost of basic goods and services.
CPI rose moderately to 3.2% yoy in July.
“Due to high inflation, the typical household spent $202 more in July than a year ago to purchase the same goods and services. And they were spending $709 more than they were two years ago,” Zandi added.
Zandi – who is also a co-founder of Moody’s global economic analysis service Economy.com – said he sees relief ahead and predicted that inflation will “moderate further” as the Federal Reserve nears its 2% inflation target.
“Vehicle prices will fall more sharply, as will electricity prices and the increase in housing costs will continue to slow down. The biggest concern is the rise in oil prices, which needs to be closely monitored,” he said added in the thread posted on X, formerly known as Twitter.
Despite gas prices hitting an eight-month high late last month, energy prices unexpectedly rose by just 0.1%, according to the latest CPI report.
However, over the past month, U.S. West Texas Intermediate and Brent crude oil futures are up nearly 10% to $82.83 and $86.39, respectively.
Zandi concluded his analysis by saying, “The more I delve into last week’s inflation statistics, the more confident I am that inflation will return to the Fed’s inflation target by this time next year.” a recession or even a sharp rise in unemployment.”
Fed officials have said they are no longer forecasting a recession either, although sentiment contrasts with that of ratings agency Fitch, which has itself upgraded top-rated US Treasuries to AA+ from AAA, citing the possibility of the economy moving into dovish mode Economic recession will slip later this year.
However, consumers continued to feel some relief from the central bank’s aggressive tightening policy, as the core CPI – which excludes volatile food and energy prices – rose just 0.2% mom, trailing the 0.2% rise in June corresponded.
“The trend lines are looking good,” Zandi said, noting that “the July CPI report was great,” especially compared to June 2022, when inflation peaked at 9.1% and a four-decade high reached.
Soaring housing costs were by far the largest contributor to July’s price hike, accounting for 90% of the increase, the Bureau of Labor Statistics reported, though Zandi didn’t seem overly concerned.
When The Post reached out to Moody’s for comment, the financial services company cited comment from another of the company’s economists, Bernard Yaros, who said that “US CPI in July was fully in line with our expectations and consensus expectations.”
“Moody’s Analytics believes the Federal Reserve is done raising interest rates for the current tightening cycle and the July CPI is helping to firm our short-term view on monetary policy,” he added.
The CPI report raised questions about whether the Fed will hike rates again later this year after the Fed announced a 25 basis point rate hike in July, taking it to a 22-year high.
Fed Chair Jerome Powell said the hike was a unanimous decision, raising interest rates to a range between 5.25% and 5.5%.
Economists were divided on the forthcoming rate hikes after the release of the CPI report.
Greg Wilensky, head of US Fixed Income at Janus Henderson Investors added, “If economic conditions hold up as expected, we believe we’ve seen the last rate hike of the cycle.” This makes us more constructive about increasing interest rate risk, particularly the top of the yield curve.”
Meanwhile, Eugenio Aleman, Raymond James’ chief economist, believes the stubbornly high cost of housing “will put pressure on headline inflation going forward”.
No doubt the Fed will also look at the Labor Department’s July hiring report to see if it has done enough to contain inflation.
Last month, U.S. employers added 187,000 jobs, the lowest number since the peak of COVID in 2020, although month-on-month unemployment was little changed at 3.5%.
The labor market has shown surprising resilience in recent months, adding 209,000 jobs in June and a whopping 339,000 in May.
The US is currently enjoying a 30-month streak of monthly employment gains.