May 13, 2022
Topics shared in this publication are:
- U.S. inflation is at the highest in four decades due to COVID-19 induced spending on goods, supply chain issues, fiscal stimulus from the government and very accommodative monetary policy from the Federal Reserve.
- We expect a deceleration in inflation in 2022, due to several factors. They include reduced consumer savings, low consumer sentiment, slower demand for housing as a result of declining affordabilty, as well as softening wage pressures.
- We also expect strong productivity growth from firms that invested heavily in new technology to have a downward impact on inflation going forward.
- Upside risks come from boosts to commodity prices (energy, agriculture, metals) as a result of the Ukraine war, and renewed supply chain disruptions due to recent COVID lockdowns in China.
- Underlying measures of inflation showed some signs of easing at the start of the year, though April readings were mixed.
- We expect inflation to decelerate, coming down to 4.5%y/y by year end and further deceleration thereafter.
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