Despite only a moderate increase in inflation in the previous month, one of the state’s prominent economists foresees a continuation of elevated prices heading into 2022.
On Wednesday, the Labor Department reported a 5.4% rise in consumer prices in July compared to a year earlier. The consumer price index (CPI) rose .5% from June to July, which marked a more gradual increase than its nearly 1% rise from May to June. It was still higher than the average .2% rate from 2000 to 2019.
The CPI measures what consumers pay for goods and services.
Richard Moody, chief economist for Birmingham-based Regions Financial Corporation, believes designating the new data as a short-term condition would be a mistake.
“Many will dismiss the over-the-year comparisons and point instead to the monthly increases, which in July were much smaller than those seen in each of the past three months, as proof of the transitory nature of inflation pressures,” he wrote in his Economic Update. “We are less than convinced, as factors such as global supply chain bottlenecks and higher shipping costs could easily persist into 2022, while labor costs will continue to increase.”
While some have maintained that concerns over the Delta variant of COVID-19 could curb business activity, Moody sees it as a reason for a long-term increase in prices.
“To the extent that the spread of the Delta variant leads to people cutting back on things like traveling, dining out, and frequenting recreation and entertainment venues, there would be a downward pull on services prices, but you could argue this would also set the stage for a rebound at some point down the road,” he offered.
Additionally, he pointed to rent growth and medical care costs as being possible sources of inflationary pressure during such a time period.
Moody anticipates inflation remaining above 5% at least through the end of the year, conditions which he asserts will make it “increasingly difficult for consumers to see higher inflation as being merely transitory.”
The bottom line for Moody is that it is difficult to draw conclusions using only the most recent data.
“[W]hile the more moderate increases in the total and core CPI in July are welcome, they settle nothing,” he concluded.
Tim Howe is an owner of Yellowhammer Multimedia