Inflation remains stubbornly high despite Federal Reserve’s efforts to stabilize costs

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• Amna Nawaz:

  No matter how you slice it, the latest inflation numbers today are not good. Inflation is still above 8 percent. And it's at a 40-year high, with prices rising for housing, medical care, new cars, air travel, and more.

  It will almost surely mean another significant interest rate hike in just a few weeks.

  Economist Diane Swonk is here to look at what's behind this persistent inflation. She is with the professional services firm KPMG.

  Diane Swonk, welcome back to the "NewsHour." And thank you for joining us.

  That inflation increase was more than what many expected, even as the Fed is taking aggressive actions to slow the economy down, try to bring down those price increases. Help us understand, what is driving that inflation increase, and why is it so hard to get under control?

• Diane Swonk, Chief Economist, KPMG:

  Well, sadly, it really reflects inflation in the service sector. And inflation in the service sector is much more tied to the labor market, which gets to this very difficult issue that the Federal Reserve is in now that it's actually targeting the labor market to some extent with rate hikes.

  They're trying to bring demand down and cool it down to be in line with a very supply-constrained global economy, a supply-constrained economy in the United States as well, and a supply-constrained labor market. We literally don't have enough workers out there.

  And we want to have workers and jobs in line with each other, more imbalance with other, so they actually can have wages that exceed inflation, rather than wages that are constantly chasing inflation, but the kinds of inflation we're seeing out there in health care costs. COVID was costly. And it's now having a legacy impact on health insurance costs.

  We're seeing the shelter cost rise that we saw, again triggered in part by the frenzy of everyone wanting to buy a home when interest rates plummeted, and now those costs showing up in the cost that we see out there, the high demand for rentals, the shortage of housing. All of those things together are coming together and giving us this really bad inflation stew.

• Amna Nawaz:

  But, Diane, it's a complicated economic picture right now when you take a step back. Jobs are plentiful. As you mentioned, wages are rising. Unemployment is very low. Consumer demand is still strong. And yet we see this inflation increase.

  How should people reconcile, make sense of all of these factors right now?

• Diane Swonk:

  Well, it's really hard.

  I mean, the reality is that the average consumer has lost everything they have gained and then some to inflation on wages. So their wages went up. And that was terrific as the economy reopened. And then inflation accelerated so much that it left them scorched and burned in their wallets.

  And I think that's very important to understand. And it's why most Americans, even though we created over 3.8 million jobs year to date, which is more than — second most that we have created in any years since 1984, really in a stunning amount of jobs, even though we created all those paychecks, most people in their individual lives feel like they're losing ground. Hence, they feel like we're already in a recession.

  And the problem is, of course, we do have demand that is stalling out, despite 3.8 million new paychecks being generated. It looks like consumer spending is growing less than 1 percent in the current quarter and likely will stall out in the fourth quarter. And as we move into 2023, you're going to have to see an even cooler chill to demand in order to bring inflation down.

  And that's really hard. From the Fed's perspective, you have to remember inflation is kind of like cancer. If you don't deal with it now with something that may be painful, you could have something that metastasized and becomes much more chronic later on. And that's something they're trying to avoid.

  But that doesn't mean the treatment is very easy.

• Amna Nawaz:

  And we know so many Americans are already struggling. We will see what comes ahead.

  That is economist Diane Swonk of KPMG joining us tonight.

  Thank you.