Experts see peak of inflation approaching

Prices to climb higher, but less dramatically

Has the nation’s nerve- jangling bout of inflation peaked?

Annual consumer price increases hit yet another 40- year high of 8.5% in March, and several research firms – including Barclays, Morgan Stanley and Wells Fargo – say that probably marks the worst of it.

After six months of steady advances in the consumer price index ( CPI), the past five of which set fresh four- decade highs, the yearly rises should slowly decline through 2022, the economists say. And though prices will continue to move higher month to month, the increases should be less dramatic.

Such a scenario would still squeeze U. S. households struggling to keep up with ever- climbing costs. And economists believe inflation will remain an uncomfortably high 5% or so by year’s end. But it would at least feel as if the country were on the downhill side of a forbidding mountain.

“While people won’t feel it immediately and prices are still rising ... there will be a psychological effect,” says Gregory Daco, chief economist at EYParthenon.

Oil and gas prices have fallen in recent weeks. If they rise less than 8% or so in April from the prior month, overall inflation would start heading down.

That could affect consumers’ inflation expectations, which in turn may help quell inflation by moderating workers’ demands for higher wages.

But some economists say inflation could drift still higher over the next couple of months.

Kathy Bostjancic of Oxford Economics believes inflation will peak near 9% in May before starting to abate. And she says price increases will need to ease significantly before they start changing Americans’ inflation expectations.

A big reason experts see inflation starting to ease soon: Prices began rising sharply last spring and summer, and so the annual increase from a year ago will start to decrease because of simple math.

To avoid another all- time high and begin what could be a gradual descent, April’s monthly increase in the CPI needs to stay below 0.8%, Daco says.

What causes inflation?

What happens to gasoline prices could be key. The CPI jumped 1.2% last month – a 17- year high – and pump

prices accounted for two- thirds of the increase as they surged 18.3%.

Oil and gas prices, though, have fallen in recent weeks. If they rise less than 8% or so in April from the prior month, overall inflation would start heading down, assuming other costs don’t increase more than they did last month, Daco says.

Used car prices will be another barometer. They declined for the second straight month in March, slipping nearly 4%, but are still up 35.3% over the past year. If much of the demand for used cars has been satisfied, as Daco suspects, that could go a long way toward keeping a lid on the broad price index.

Bostjancic is warier, noting used car prices “have been choppy.” Crude prices edged back over $ 100 a barrel late Tuesday, she notes, and wholesale gasoline prices rose about 15 cents a gallon.

“Today’s gains showed the fickle nature of what might be called a broken market,” says Tom Kloza, chief global analyst for the Oil Price Information Service. “I’m afraid inflation in oil is with us for this quarter and next, but it will be a roller- coaster ride.”

Will food prices go up in 2022?

Bostjancic also worries about a rise in food prices and a shift in consumer purchases from goods to services as the pandemic fades. The latter could further push up costs for airfares and hotels, which rose 10.7% and 3.3%, respectively, in March.

Then there’s Russia’s war in Ukraine, which could continue to disrupt supply chains and drive energy and wheat prices – chief exports from the region – higher, Daco and Bostjancic say.

In other words, inflation may well have peaked, but it may drift higher in the next month or two.

In an era marked by pandemic and war, “there’s so much uncertainty,” Bostjancic says.