US inflation will continue to increase in 2022

The US ended 2021 with a record high inflation in decades, a trend that is forecast to continue into 2022.

The US CPI in November 2021 increased by 0.8% compared to the previous month. Photo: AFP

Prices for US goods and services have skyrocketed in 2021 and will take some time to return to normal levels. That is, inflation will continue to increase in 2022.

November 2021 inflation data compiled by CNN show consumer price index (CPI) and personal consumption expenditure index (PCE) – two of the most-watched inflation measures – both have risen to 39-year highs. In which, CPI increased by 0.8% month-on-month and by 6.8% over the same period last year. This is the fastest growth rate since June 1982.

Excluding food and energy prices, the US core CPI in November only inched 0.5% month-on-month and only 4.9% year-on-year, but this is still the highest increase. since mid-1991.

Of these two indexes, PCE is the one that the US Federal Reserve (Fed) is most interested in when assessing inflation.

There is still room to be optimistic about US inflation in 2022 if the Fed takes action to stabilize prices and drastically narrows economic stimulus packages. Inflation and the overheating US economy are expected to be contained if the Fed conducts three rate hikes in 2022 as expected after the recent policy meeting.

Furthermore, appeared good sign when both CPI and PCE in November increased more slowly than the previous month. However, economists typically assess price movements over a 12-month period. Therefore, the slowdown in price growth in November does not fully reflect the full year 2021 inflation picture.

Experts predict it may take a few months for US inflation to slow down. Even if prices suddenly drop sharply, it still takes time to reflect on key inflation metrics such as CPI and PCE. These are also the explanations of Fed Chairman Jerome Powell about “fundamental effects”.

On the other hand, a number of factors are forecasted to continue to push up US inflation. Significantly, the supply chain bottleneck that occurred last summer, although some bottlenecks have been loosened, have not been completely resolved. As a result, the goods will still increase in price and the delivery of the goods will require more time. Rising transportation costs may continue to be passed on to consumers.

Rising food and energy costs is another factor. Food and energy prices have skyrocketed in 2021 and contributed in no small part to US inflation. For food, rising prices have forced some consumers to cut back on spending or switch shopping locations.

According to economists, the situation of energy and food prices is unlikely to improve further in 2022. In addition to high demand and transportation costs, rising fertilizer prices and extreme weather will continue. continued to push up food prices, even as inflationary pressures eased.

In addition, rising rents are also an inflation concern because housing accounts for a large amount of spending by Americans. If rents take a larger share, Americans will likely have to spend less, which would be bad news for the economic recovery.

According to economists at Bank of America, November 2021 saw rents in the US increase by 0.4% for the third month in a row and this signaled that inflation would be higher and more persistent in the future. .

And Mr. Peter B. McCrory, economist at financial services firm JPMorgan, said: “Recent inflationary pressures increase along with a notable increase in rents”.

Omicron is the third factor pushing US inflation to continue to increase. Several countries, including the US, have seen a record spike in Covid-19 infections in recent weeks due to the rapidly spreading variant of Omicron. If the US imposes a new blockade, it could lead to a big change in American spending and boost demand for consumer goods at home.