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Inflation will remain in 2022




American consumers are struggling with the fastest price increase for decades, with the cost of everything from cars to gasoline to food soaring across the country.

And the problem may get worse before it starts to get better.

In a recent customer analyst note, Goldman Sachs economists warned that pandemic-induced disruptions in the global supply chain ̵[ads1]1; which have caused congestion in ports and department stores across the country – could last longer than expected as rising demand struggles to keep pace, means that inflation measurements will remain “quite high for much of next year.”

“It is now clear that this process will take longer than first expected, and the inflation overrun will probably get worse before it gets better,” they wrote.

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Inflation, measured by the Federal Reserve’s preferred measure, has climbed to its highest level since February 1982. In November, the price index for personal consumption expenditure jumped to 5.7%, well above the Fed’s preferred target of 2%. The data are further evidence of an increase in prices illustrated by a separate target – the consumer price index – which showed that inflation rose by 6.8% in November from the previous year.

Inflation will remain in 2022

Customers line up to check out a Black Friday sale at Macy’s on November 26, 2021, in Indianapolis. (AP Photo / Darron Cummings, File / AP Newsroom)

The warmer-than-expected inflation report is likely to bolster the Federal Reserve’s decision in December to speed up the withdrawal of US economy aid and could put further pressure on the central bank to tighten policy further in 2022 by raising interest rates.

Although politicians voted to keep interest rates close to zero, where they have been since March 2020, new economic estimates show that all Fed officials have set at least one rate hike next year – a significant shift from September, when half of central bank governors believed the interest. interest rate increases were not justified until at least 2023.

Officials now estimate that rates will be 0.9% by the end of 2022, 1.6% by the end of 2023 and 2.1% by the end of 2024.

At the end of its last meeting with the policy, the Federal Open Market Committee said it would double the $ 30 billion-a-month asset purchase program, a timeline that could phase out purchases by March instead of the original June runway. last month.

Jerome Powell, Chairman of the Board of the US Federal Reserve, during a hearing in the Senate Banking, Housing and City Committee in Washington, DC

Jerome Powell, Chairman of the Board of the US Federal Reserve, during a hearing in the Senate Banking, Housing and City Committee in Washington, DC (Al Drago / Bloomberg via Getty Images / Getty Images)

Fed Chairman Jerome Powell said he still believes consumer prices will fall next year as bottlenecks in supply chains disappear, but he also warned of an increasing risk of persistently high prices. The decision to accelerate the withdrawal of support, Powell said, stems from a number of October indicators, including rising wages, half a million new jobs and a 0.9% monthly increase in consumer prices.

“It’s a real risk now,” Powell told a news conference to explain the Fed’s decision. “I think inflation may be more persistent … the risk of higher inflation sticking has increased.”

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Goldman Sachs economists – who estimated that core PCE inflation will rise from 3.6% to 4.4% by the end of 2021 – supported this view. They have predicted that inflation will cool slightly to 2.3% by the end of 2022 and fall to 2.1% by the end of 2023.

“We do not believe that overall demand is on an unsustainable path or that inflation expectations have become unfounded, and the overrun should therefore ultimately prove to be temporary,” the economists wrote.



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