CME Group: A Bumpy Inflation Ride Ahead
Inflation has come down substantially over the past year. Since peaking at over 9 percent, it’s now down to 3 percent, a decline of two-thirds. Getting the last of inflation out of the economy, and keeping it away, however, may be a bit bumpier than the ride so far.
That’s because the year-over-year data has showed a big decline. But the month-to-month data has showed less of a decline. And it may even rise slightly in the months ahead.
That could be due to chances in base effects. Overall, the impact is likely to keep inflation near the 3 percent range through the end of 2023. That’s 50 percent higher than the Federal Reserve’s target rate of inflation of 2 percent.
One big driver is shelter inflation. Rents have had a considerable jump higher in recent years. And housing prices have only cooled slightly. Mortgage rates have jumped from 3 percent to 7 percent in the past year and a half. That’s caused potential homebuyers, first time or otherwise, to rethink their housing plans.
Ultimately, the Fed is still behind the wheel here. They may push for higher interest rates to get back down to that 2 percent level. But doing so may cause the economy to slip into a recession. Investors need to pay more attention to the Fed’s moves in today’s market.