december2022 - 35

ECONOMI C OUTLOOK
to continue at or above their current pace for
at least another six months.
On the other end of the weighting scale are
items like gasoline and airline fares. Together,
those series account for about 4% of the index.
But those prices are rising at extremely high
rates (42.9% for airline fares, 18.2% for gasoline),
so their weighted contributions are
substantial. Here, again, we expect their pace
of increase to be sustained well into 2023.
Another set of prices we previously mentioned
were those of truck transportation
services. Here, we have seen a bit of easing from
the peak composite rate of 24.9% set in May to
16.3% as of September. Most of that easing has
happened in the long-distance segment of the
market. In September, local freight rates were
up 19.2% from their year-prior level; little has
changed from the peak rate of 21.2% they set in
April. Recent news in the trade press suggests
there could be some further easing in freight
rates, but significant and lasting declines will
only come as freight volumes slacken.
This brings us to FOMC and the path of interest
rates. One of the surest ways to slacken
freight volumes is to have a recession, and there
are many who think that the rate increases that
have already taken place could be enough to
bring about such an event.
FOMC never wants to start a recession, but it
What signals will
help predict the
economic outlook?
While the next six months of the economy
appear rough, watching pricing, freight
rates, inflation, interest rates, and more
will help leaders in the transportation
industry know what to expect.
Inflation continues to dominate the
economic news for many reasons, and the
most important is the role that prices play in
how, when, and where goods and services are
produced, transported, and sold.
At Mackay and Co., we noted that both
consumer and producer goods prices were
adversely affected by the disruption of their
supply chains during the pandemic that
closed the global economy and the reopening
that followed.
One of the results of these disruptions
was to provoke a change in the stance of the
Federal Open Market Committee (FOMC), the
policy-setting entity of the Federal Reserve
Board, toward raising interest rates in an effort
to quell some of the inflationary forces at work.
In this piece, we will briefly review what
has happened to several important measures
of inflation, discuss their prospects going
forward, and then take a look at what signals
we can look for to see when and how FOMC will
undertake its next policy shift. Spoiler alert:
They can't raise interest rates forever.
Based on what we know now, it appears the
rate of inflation, as measured by the seasonally
adjusted year-over-year percent change
in the All Items Consumer Price Index (CPI),
peaked at 9.0% in June 2022. While this is the
most widely followed measure of inflation, it
is not the only one. And FOMC looks at several
other measures as it considers what to do
about inflation.
The somewhat slow descent of the CPI from
its peak (it was still at 8.2% in September) has
to do both with how the index is compiled as
well as the performance of the prices involved
in that compilation. The CPI is a weighted
index, meaning that some components receive
more emphasis than others. The largest components
of the CPI are those involved with the
consumption of shelter. Their combined
weights are almost 30% of the index, and
those prices are still rising faster than they
were a year ago. Moreover, they are expected
cannot be indecisive in its fight against inflation.
Over the next several months, we expect
FOMC to declare victory and stop raising rates.
That declaration is likely to come after a threestage
process.
In the first stage, you can expect to see the
president of one of the regional Federal Reserve
Banks (there are 12) making speeches about
how it might be time for FOMC to change course.
In the second stage, you can expect to see
a member of the Board of Governors of the
Federal Reserve (there are seven) start to make
speeches along the same lines. It is also possible
that there will be dissents in the vote taken at
the end of each FOMC meeting on the policy
action that is announced. So far, all of the votes
to raise rates have been unanimous.
The third and final stage will be when Fed
Chair Jerome Powell speaks on the subject
either in the " forward guidance " section of
the press conference that follows FOMC meetings
or in Congressional testimony associated
with the several appearances he has to make
on Capitol Hill every year.
Keeping on eye on these signals will better
prepare the transportation industry for the
road ahead.
By Robert Dieli
ECONOMIST, MACKAY & COMPANY AND PRESIDENT, RDLB INC.
MacKay & Company specializes in market research for commercial trucking,
construction equipment, and agricultural machinery. The company provides
strategic research and analysis to vehicle and component manufacturers,
distribution and service channels, industry associations, and private equity firms.
With a long career managing portfolios and coordinating domestic economic
forecasting programs, Dieli began RDLB, Inc. in 2001. In this role, Dieli serves as an
advisor to many firms in the trucking, consulting, and financial services sectors.
He is also an economist with MacKay & Company.
December 2022 | FleetMaintenance.com
35
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