Rising cyclical pressure will keep inflation elevated

The spread of the Delta variant domestically has triggered a temporary reversal in the reopening inflation in high contact services, but its spread across other parts of the world will intensify supply shortages and drive goods prices higher. At the same time, transportation costs are soaring, energy prices are proving more resilient than we expected and cyclical inflation is still building. The upshot is that, while price inflation will fall next year, we expect it to rebound to well above 2% in 2023.
Paul Ashworth Chief North America Economist
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US Data Response

Industrial Production (Sep.)

The 1.3% fall in industrial production in September partly reflects a temporary hit to mining and chemicals output from Hurricane Ida and a drop in cooling demand, as the weather returned to seasonal norms. That said, most of the 0.7% drop in manufacturing output is due to worsening shortages, particularly of semiconductors, which will hold back production for some considerable time.

18 October 2021

US Economic Outlook

Whiff of stagflation gets stronger

The whiff of stagflation is getting stronger as shortages worsen, leading to surging prices and weaker real GDP growth. Shortages of goods and intermediate inputs will eventually ease, although not for at least six to 12 months. But the drop in the labour force appears to be more permanent, which suggests the pandemic could have a long-term scarring effect on potential GDP after all. We now expect GDP growth to be 2.7% in 2022 and 2.0% in 2023 and we expect CPI inflation to be around 3.0% in both years. We assume the Fed will focus on the weakness in the real economy rather than the sustained overshoot in inflation, however, and are forecasting only two interest rate hikes in 2023.

18 October 2021

US Economics Weekly

Labour force exodus shows no sign of reversing

This week brought more news that acute labour shortages and the resulting surge in wages are rapidly feeding through into the most cyclically sensitive components of the consumer price index.

15 October 2021

More from Paul Ashworth

US Economics Update

Uncertainties surround QE taper timing and pace

With the Delta-linked resurgence in coronavirus infections adding to the downside risks to economic growth and officials still split on exactly what qualifies as “substantial further progress” toward meeting the full employment goal, we don’t expect Chair Jerome Powell to provide any definitive guidance in his Jackson Hole speech tomorrow on when the tapering of the Fed’s asset purchases will begin. More generally, there is still uncertainty surrounding the pace and composition of the run-down in asset purchases and whether the Fed will commit to a pre-announced deterministic path or prefer to make adjustments on a meeting-by-meeting basis.

26 August 2021

US Data Response

GDP (Q2)

The relatively disappointing 6.5% annualised gain in second-quarter GDP, which was well below the consensus at 8.5%, included unexpected declines in government spending and residential investment, and a bigger drag from inventories than we had anticipated. The good news is that the economy has now surpassed its pre-pandemic level. But with the impact from the fiscal stimulus waning, surging prices weakening purchasing power, the delta variant running amok in the south and the saving rate lower than we thought, we expect real GDP growth to slow to 3.5% annualised in the second half of this year.  

29 July 2021

US Data Response

Retail Sales (June)

The 0.6% m/m gain in retail sales in June was a little stronger than we were expecting, but upward revisions to the decline in May take the gloss off that somewhat and, besides, with consumer prices rising by an even bigger 0.9% last month, that still means consumption fell in real terms.

16 July 2021
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