Economist Sean Snaith says inflation is coming down, but at a slow pace
Many Central Florida residents continue to deal with the impacts of inflation which peaked at more than 9% last summer.
Sean Snaith, director at the University of Central Florida’s Institute for Economic Forecasting, tells WMFE's Talia Blake that while inflation is lower, the decline is slow.
The following is an edited transcript of their conversation. Listen to the full conversation at the player above.
Talia Blake: What's the latest with inflation?
Sean Snaith: It's on its way down. It's not coming down very rapidly. We had a little 10th of a point percentage point uptick in the last reading. But the markets that were earlier in the year predicting that by the end of the year, the Fed would start lowering interest rates have started to change their tune a bit. So I think while the Fed may take a pause at the June meeting. I think it's likely that they're not finished raising interest rates. And I also think it's likely that they're going to stay at that terminal interest rate, whether it's five and a half, five and three quarters for an extended period going into, you know, I would say, at least mid-24, because we stopped the raging fires of inflation. But these these embers, as we've talked before, still kind of hot and there were some areas where prices are a bit stubborn.
Talia Blake: What are those areas?
Sean Snaith: Food is one. Things like rent, if you signed the lease, renewed the lease, and your rent went up $300. Well, that's a 12 month phenomena, and the next opportunity for the possibility of going down is when the lease expires and the next lease comes up. So, not all prices adjust at the same speed in the economy. For some things, it's very quick. The price of a share of stock adjusts within milliseconds to information (or) price of a barrel of oil can adjust very quickly. Other things not as fast. So we've got these so called 'sticky elements' of the consumer price index that are coming down, but not coming down at a very rapid pace at this point.
Talia Blake: How is inflation impacting the labor market here in Central Florida?
Sean Snaith: The impact or the sort of interaction between inflation and the labor market really happens through wages. This is another element that is another challenge for the Fed in getting that inflation down is that there's wage growth. And so because we've had inflation, kind of in the economy for a while. And it's been about two years, where the cost of living has gone up faster than people's wages and salaries. And so that's where the Fed has an additional challenge, because the labor market is still very tight. Unemployment is incredibly low sub 3%, here in Central Florida. In a market like that, there's still a lot of upward pressure on wages. And so that dynamic between wages and inflation is part of the equation here that the Feds dealing with. And one of the other reasons that I think their work is far from done, and we're a ways away from when they're gonna start rolling back interest rates,
Talia Blake: Checking the pulse of the Central Florida economy, how are we dealing with inflation locally, compared to the rest of the country?
Sean Snaith: Not all labor markets are the same. Florida's economy is very strong. Our labor market is extremely tight, certainly tighter than other places. So every state, every region does not experience the economic cycles in the same way. What's happening here is happening to some extent in other places. In other areas of the labor market, in addition to offering higher wages, there's this whole sort of work from home, work in the office, hybrid/blend that companies, I think are trying to figure out. I think we're still, here in central Florida and really around the country and maybe globally, trying to feel our way through this process. So higher wages plus flexibility, I think is how we have to deal with that here in Central Florida. Other places, I just read that, Pennsylvania, lawmakers were looking at a four day workweek, as a way allegedly, to solve the labor situation there. But I don't think we've arrived at the final solution. I think it's still fairly dynamic. I think the economy is slowing. I wouldn't declare we're in a recession as of right now. But, we may be heading toward it, many indicators point that, and many economists are anticipating that some point in 2023. So that will fit in to the picture, but there are signs of tightening in the labor market.
Talia Blake: Speaking of issues, you just mentioned the recession a little bit ago. With that anticipated recession, and then everything else that's going on in the state, for example, people leaving the state or the truckers protests because of the immigration laws. With everything going on here in Florida, what does the current state of inflation mean for residents?
Sean Snaith: These other issues aside, it's not showing up in the data, but of course, most of the data is backward looking. What we do know from the most recent data we have is that Florida had the fastest growing population of any state last year. More recent data suggests that is continuing and 2023. So the economy's strong. Our housing market prices are still high. They did come down a little bit, maybe 5% from the peaks, but inventories are still low. Consumers are not spending as much on goods right now. We know, transactions in the housing market have slowed significantly, because by and large consumers are working, if they want to be, and are still spending money on experiences, and that includes Travel and Leisure expenditure. The two things that killed us in 2008, 2009, and 2020 recessions are in good shape, as we sit here today. So that, with the state of the labor market ongoing, and population growth, we're as shored up as we can be to take any impact from from a recession.
Talia Blake: Looking forward, we're halfway through the year now. What can we expect from the remainder of the year when it comes to inflation and our economy?
Sean Snaith: I think inflation will continue to slowly drift down. I think in August of 2022, we peaked with consumer price inflation over 9%. I think by this August, we're probably looking at something closer to half that rate. As I said, the economy has definitely decelerated, the first quarter growth was 1.3%. That's down from last year. Will that deceleration continue and at what pace? And does it eventually get into a situation where the economy is contracting? My confidence that there will be a recession wanes with every new data point that comes out that suggests, "Well, looks like it's being pushed a little bit further into the future." Now, the unexpected could certainly happen. But right now, it looks to be a very gradual slowing of the economy. A very gradual decline in the rate of inflation. Where that goes, what the Fed does or doesn't do, could play into it. Looks like there'll be a little bit of pullback in spending, not that much, but it will be a little additional headwind to the economy. So yeah, I think in a sentence, and maybe this is where I should have started, the economy is going to gradually slow as well, the rate of inflation.
Talia Blake: But as you were saying earlier, residents might not see that relief right away, for example, like rents and things like that, but maybe we'll see something like grocery prices going down later this year.
Sean Snaith: Well, we've seen some declines in some areas, but that is one of the areas that's not going down very quickly. Energy costs, I think, have started to come down. Other areas of the economy, there have been sort of a pullback in prices. We had some extraordinary episodes with eggs and things like that, but that was more external event not solely driven by inflation. Inflation was part of the story, certainly. So it's getting better. Let's put it that way. We're not where we need to be. We're not where the Fed wants us to be. But it looks like we're on the path to get there, but we're not going to sprint to the finish line. It looks like, it's a leisurely stroll, but in the right direction.