MNI INTERVIEW: Entrenched U.S. Inflation To Linger-Fed's Meyer

The surprisingly strong September U.S. CPI report reflects an environment in which high inflation has become entrenched, and it will take months if not another year for tighter monetary policy and supply-side relief to change those dynamics, Atlanta Fed economist Brent Meyer told MNI Thursday.

The Labor Department reported earlier Thursday that headline CPI rose 0.4% after slowing to 0.1% in August, while core CPI jumped another 0.6%, same as in August. Both measures were a couple tenths higher than Wall Street forecasts and sent stocks tumbling and Treasury yields rising on expectations that the Fed will need to move interest rates higher faster.

"Inflation is very high and broad-based price pressures -- we're seeing it everywhere. This is likely to be a persistent issue," Meyer told MNI's FedSpeak podcast. "It's not clear to me at all that that's all of a sudden going to decline back down to price stability, somewhere around 2%-2.5%, in a reasonably quick way. I actually don't think that there's much evidence that that's going to be the case."

Core CPI hit a new peak of 6.6% last month, its highest since 1982, as core services jumped 8.2% in September from a year earlier. Rent and owners' equivalent rent soared by over 10% on an annualized basis and are likely to worsen before starting to improve early to mid-next year due to BLS methodology, Meyer said.

ANOTHER YEAR

"If you look on the services side of what happened this morning, and what's been happening over the last year or so, this has become entrenched," he said. "I never thought we'd see a 10% increase on an annualized basis for OER again" after the Great Inflation of the '70s. But even excluding shelter prices, "what's going on in services is really still a lot of broad-based pressure."

Those prices are heavily tied to the dynamics of supply and demand as well as wage pressures and tend to be more persistent, Meyer said. Discouragingly, CFOs recently surveyed by the Atlanta and Richmond Fed banks still anticipate cost pressures to continue for quite some time, he said.

"Folks for the most part anticipate seeing these unusually high cost pressures continuing at least for the next year or so. So that's sort of concerning," he said. "I don't think we've seen the sort of improvement in in disruption that would lead to lower prices feeding through the basket."

There does not appear to be much progress in closing the gap between demand and supply in the economy so far, despite the Fed's lifting the fed funds rate at the fastest pace in decades, Meyer said.

"It'll be at least a few months, if not six months, before we can say with any certainty whether or not we're starting to see good news."