Has inflation peaked? Here’s what the nation’s top economists say
Consumers haven’t been able to catch a break from decades-high inflation, and a new Bankrate poll casts doubt on Americans feeling relief from those price pressures anytime soon.
Just 18% of economists in Bankrate’s Second-Quarter Economic Indicator poll said they anticipate inflation to be less than expected this year, the smallest share of respondents. The largest cluster (41%) foresee inflation coming in as expected, while almost a third (29%) see inflation heating up faster. Two respondents (reflecting 12%) didn’t provide a forecast.
That prediction is even amid expectations that the Fed will raise interest rates to 3.25-3.5 % by the end of the year, reflecting the fastest pace of tightening in a single year since the 1980s.
“Americans have been through a lot over the past couple of years including the pandemic, a brief but sharp recession and soaring inflation,” says Mark Hamrick, Bankrate senior economic analyst and Washington bureau chief.
“Another economic downturn remains a risk. All of this is a call to action for individuals and households to pay down or pay off debt with credit cards at the top of the list, and to prioritize saving money in this rising interest rate environment.”
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Has inflation peaked? Here’s what the nation’s top economists say
WHY HIGH INFLATION IS LINGERING FOR LONGER
Fed officials are hoping higher interest rates will cool today’s rampant price pressures, but the ultimate risk is that it might not get the job done — primarily because today’s massive price pressures reflect supply chain disruptions that the Fed has no ability to control.
One of those corners is food. While overall inflation rose at an 8.6% pace from a year ago, grocery prices eclipsed that, rising 11.9% over the same period, according to the Bureau of Labor Statistics.
Part of what’s impacting food inflation are astronomical price gains in energy. Gasoline is up nearly 50% from a year ago, while energy more broadly jumped 34.6%, the biggest jump since 2005. Energy inflation easily spreads to the cost of food because almost all industries require it for shipping, manufacturing and production. Businesses often have no choice but to pass those prices onto consumers.
But energy inflation can also be traced back to exogenous shocks impacting the economy, from the coronavirus pandemic to the war in
Ukraine. Even before Russia invaded Ukraine on Feb. 24, the price of a barrel of oil had risen 78% from Jan. 31, 2020. Oil producers simply didn’t have enough supply to match demand as the economy reopened from outbreakinduced lockdowns.
“Some 80% of the forces driving inflation higher stem from shocks outside the U.S.,” says Bernard Baumohl, chief global economist at The Economic Outlook Group. “If the war in Ukraine rages on and China’s economy comes back online, demand for commodities will continue to outpace supplies.”
Inflation is starting to spread to different corners of the financial system. Rent rose 5.2% from a year ago, the sharpest jump since February 1987. That type of inflation can be even stickier because consumers are resigned to paying it for months at a time, depending on the length of their lease. Housing prices often spread to wage increases as consumers look to offset their added expenses.
Even the relief Americans can expect this year might be for more bad reasons than good ones. The economy is expected to slow from its rapid pace in 2022 thanks to waning fiscal stimulus and higher interest rates, which could take some steam out of the system. Yet, economists in Bankrate’s poll also put the chance of a recession over the next 12 to 18 months at 52%, underscoring the importance of keeping cash on the sidelines in an emergency fund.