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Submission: On March 07 via manual from US — Scanned from DE
Submission: On March 07 via manual from US — Scanned from DE
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Skip to Main ContentSkip to SearchSkip to... Select * Listen to Article * Conversation * What To Read Next SubscribeSign In https://www.wsj.com/articles/will-inflation-fall-any-pullback-depends-on-these-sectors-11646649003 * Economy * U.S. Economy WILL INFLATION FALL? ANY PULLBACK DEPENDS ON THESE SECTORS FACTORS AFFECTING CARS, RENT, ENERGY AND OTHER CATEGORIES PLAY ROLES IN DETERMINING IF A DROP WILL OCCUR Contribution to the 7.5% rise in consumer prices from a year ago, by category and select subcategories MAIN CATEGORIES SUBCATEGORIES Meats, poultry, fish and eggs JANUARY +7.5% from a year earlier Note: Housing includes rent of primary residence, school housing, hotels, motels and related costs. Figures have been rounded. New and used vehicles accounted for a combined increase of 1.57 percentage points in overall inflation. Source: Bureau of Labor Statistics Contribution to the 7.5% rise in consumer prices from a year ago, by category and select subcategories MAIN CATEGORIES Meats, poultry, fish and eggs JANUARY SUBCATEGORIES +7.5% from a year earlier Note: Housing includes rent of primary residence, school housing, hotels, motels and related costs. Figures have been rounded. New and used vehicles accounted for a combined increase of 1.57 percentage points in overall inflation. Source: Bureau of Labor Statistics Contribution to the 7.5% rise in consumer prices from a year ago, by category and select subcategories MAIN CATEGORIES Meats, poultry, fish and eggs JANUARY SUBCATEGORIES +7.5% from a year earlier Note: Housing includes rent of primary residence, school housing, hotels, motels and related costs. Figures have been rounded. New and used vehicles accounted for a combined increase of 1.57 percentage points in overall inflation. Source: Bureau of Labor Statistics Contribution to the 7.5% rise in consumer prices from a year ago, by category and select subcategories New and used vehicles accounted for a combined increase of 1.57 percentage points in overall inflation. Meats, poultry, fish and eggs Note: Housing includes rent of primary residence, school housing, hotels, motels and related costs. Figures have been rounded. Source: Bureau of Labor Statistics Contribution to the 7.5% rise in consumer prices from a year ago, by category and select subcategories Meats, poultry, fish and eggs New and used vehicles accounted for a combined increase of 1.57 percentage points in overall inflation. Note: Housing includes rent of primary residence, school housing, hotels, motels and related costs. Figures have been rounded. Source: Bureau of Labor Statistics By Gwynn Guilford | Graphics by Peter Santilli March 7, 2022 5:30 am ET Share Text 77 Responses Your browser does not support the audio tag. Listen to article Length 10 minutes AD Loading advertisement... 00:00 / 09:38 1x This article is in your queue. Open Queue To figure out where inflation is headed, don’t look at the overall economy, look under the hood. Inflation surged from 2.5% in January 2021 to 7.5% in January 2022 and could edge even higher as the impact of Russia’s invasion of Ukraine is felt on oil prices. But economists expect inflation to fall to between 2.7% and the upper-4% range by December. How does inflation swing from 7.5% to around half that in just 11 months? Normally, the main driver of inflation is the economy itself: the degree of economic slack, and the overall balance of supply and demand. There are always outliers because of temporary events, such as an interruption to oil supplies. But these usually resolve on their own and don’t tell you much about where inflation will be in a year. So economists seldom try to predict price movements for discrete goods and services. Consumer-price index, 12-month change With contributions of core inflation, food and energy FORECAST 8% CPI 6 Core inflation 4 Food 2 Energy 0 –2 2020 2021 2022 Source: Nomura Note: Contributions are in percentage points. Consumer-price index, 12-month change With contributions of core inflation, food and energy FORECAST 8% CPI 6 Core inflation 4 Food 2 Energy 0 –2 2020 2021 2022 Source: Nomura Note: Contributions are in percentage points. Consumer-price index, 12-month change With contributions of core inflation, food and energy FORECAST 8% CPI 6 Core inflation 4 Food 2 Energy 0 –2 2020 2021 2022 Source: Nomura Note: Contributions are in percentage points. Consumer-price index, 12-month change With contributions of core inflation, food and energy FORECAST 8% CPI 6 Core inflation 4 Food 2 Energy 0 –2 2020 2021 2022 Note: Contributions are in percentage points. Source: Nomura Consumer-price index, 12-month change With contributions of core inflation, food and energy FORECAST 8% CPI 6 Core inflation 4 Food 2 Energy 0 –2 2020 2021 2022 Note: Contributions are in percentage points. Source: Nomura Now, though, the Covid-19 pandemic has disrupted so many industries that disaggregating inflation into its microcomponents is necessary as far as a year out, said Alan Detmeister, economist at UBS. WE WANT TO HEAR FROM YOU On which of your expenses have you felt the greatest impact from higher inflation? Share your thoughts in the form below, or join the conversation. “I’m a macroeconomist by training that believes, yeah, maybe for a month or two, you do disaggregated,” he said. “But right now is a special time—you have so many of these special stories hitting.” Standard models that predict inflation based on unemployment and economic slack would at best explain inflation of as much as 3.5%, he said. Those models missed the inflation surge and for the same reasons, are likely to miss the reversal, said Mr. Detmeister, who expects inflation to fall to 2.7% in December 2022. Here is a look at what prices might come down—and what might go up—as 2022 unfolds: AUTOS It is hard to overstate how much of last year’s inflation drama boiled down to autos, and how much an improvement depends on car production. It isn’t that autos make up a huge share of spending: New and used vehicles are about 7% of the average consumer’s spending basket currently. Rather, it is the sheer magnitude of the price changes that make them pivotal to the inflation outlook. The average new vehicle went for $46,404 in January 2022, up more than $5,100 from a year earlier, according to Cox Automotive. Prices for used cars and trucks leapt 40.5% in January from a year earlier, contributing 1.1 percentage points of overall inflation. New-car prices shot up 12.2%, pitching in a further 0.5 percentage point. The combined contribution was four times higher than in January 2021. Created with Highcharts 9.0.1Consumer prices, 12-month changeSource: Bureau of Labor Statistics Created with Highcharts 9.0.1PandemicAll itemsUsed cars and trucksNew vehicles2019'20'21'22-200204060% A few things have to happen to idle this engine of inflationary pressure. One is what economists call “base effects.” Prices in absolute terms might be high, but their contribution to inflation depends on the change from 12 months earlier. If auto prices simply stayed the same as in January, their contribution would drop to less than 0.1 percentage point by year-end. As for why prices are so high, the main reason is supply: A shortage of semiconductors has restrained auto production. Chip deliveries were taking 25.7 weeks in January, down slightly from December but nearly twice the typical pre-pandemic wait, according to Susquehanna Financial Group. Your browser does not support the audio tag. Your Money Briefing How to Inflation-Proof Your Retirement Savings Beyond everyday expenses, rising inflation is putting the squeeze on long-term savings such as IRA and 401(k) retirement accounts. WSJ retirement reporter Anne Tergesen joins host J.R. Whalen with tips to hedge against rising prices and preserve returns on your retirement investments.Read Transcript AD Loading advertisement... 00:00 1x Subscribe Apple Podcasts Google Podcasts Spotify iHeartRadio TuneIn Stitcher Amazon Alexa RSS Semiconductor manufacturing will continue to catch up, such that auto output starts putting downward pressure on prices in the second half of 2022. However, Aichi Amemiya, senior U.S. economist at Nomura, said Ukraine-related fallout—for example, Russia is a significant exporter of palladium used in catalytic converters—will likely keep new-vehicle prices rising for much of the year, feeding through to higher used-auto prices too. Still, he expects new-car prices to rise just 3.1% in December, and prices for used vehicles to decline 1.8% that month. Changes in demand will help too, said Omair Sharif, founder of Inflation Insights LLC. In normal times, rental companies are a sure source of used cars. But after shrinking their fleets when the pandemic hit, they then tried to rebuild, competing for used cars with consumers armed with stimulus checks and pent-up savings. Rental companies have now mostly rebuilt their fleets, with Avis Budget Group Inc. back to its 2019 fleet size, said Mr. Sharif, who expects price declines of 0.9% for new vehicles and 4% for used ones in December. Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, forecasts even bigger drops: 1.5% and 5% for new and used vehicles, respectively. “There will be some consumer price sensitivity going forward because these very large, one-time cash stimulus payments that occurred in 2021 aren’t going to be repeated,” she said. Aided by base effects, that will reduce the contribution to inflation from autos by between 1.5 and 1.8 percentage points in December from current levels, according to forecasts by Mr. Amemiya, Mr. Sharif and Ms. Rosner-Warburton. PRICE INCREASES FOR APPLIANCES ARE LIKELY TO EASE BY YEAR-END, ACCORDING TO NOMURA. Photo: michael reynolds/EPA/Shutterstock FURNITURE Dysfunctional supply chains and high demand inflated prices of other goods, too. Home furnishings and supplies rose 9.3% in January, adding 0.4 percentage point to inflation. Created with Highcharts 9.0.1Consumer prices, 12-month changeSource: Bureau of Labor Statistics Created with Highcharts 9.0.1PandemicAll itemsFurniture and beddingAppliances2019'20'21'22-1001020% Mr. Amemiya bases his forecasts for household furniture, bedding and appliances on input costs for manufacturers and supplier delivery-time indexes from the Institute of Supply Management and IHS Markit, which reflect how quickly suppliers are fulfilling orders. The latter tend to lead household-furniture and bedding prices by a few months, he said. They have come down, but further improvement will likely be stalled by Ukraine-related disruptions. Mr. Amemiya expects furniture and bedding prices to rise 10% in December 2022, down from 17% in January. Appliances will decelerate to 7.8%, he forecasts, compared with their 8.5% increase last month. Ms. Rosner-Warburton expects a 2.7% price increase in December, leaving home furnishings and supplies contributing 0.1 percentage point to inflation. RENT While economists expect inflation to ease, they don’t expect it to fall to the 1.8% rate reached in 2019. Rent is a big reason why. Housing is crucial for the inflation outlook because it makes up nearly one-third of the consumer-price index. Even small gains can push up inflation a lot. Created with Highcharts 9.0.1Consumer prices, 12-month changeSource: Bureau of Labor Statistics Created with Highcharts 9.0.1PandemicAll itemsTenants' rentOwners’ equivalent rent2019'20'21'2202468% The way the Labor Department measures housing costs isn’t intuitive. It draws price data from new and existing leases, which feed into indexes for tenants’ rent and so-called owners’ equivalent rent that make up 8% and 24%, respectively, of the CPI. The latter doesn’t take home prices into account because the Labor Department deems home purchases to be a long-term investment, not a consumption good. Rather, it estimates OER based on what an owner would have to pay to rent her own home, based on rents for houses or apartments in high-homeownership areas. The pandemic at first kept rents in check, because of the hit to the economy and the decision by many younger adults to move in with family. Rents have since rebounded because of falling unemployment and a return to more-normal living arrangements, with 1.4 million new households formed in 2021, according to census data. In January, OER increased 4.1%, the fastest since March 2007. Tenants’ rent rose 3.8%. Combined, that contributed about 1.3 percentage points to inflation, double a year earlier. Both indexes move slowly, because leases are typically renegotiated annually. But private-sector companies such as Zillow Group Inc. and ApartmentList show a sharp uptick in rents recently, hinting at more inflation to come, buoyed by a strong labor market and the lowest rental vacancy rate since the mid-1980s. Mr. Sharif expects rent and OER to hit 5.1% and 4.9%, respectively, in December, contributing a combined 0.3 percentage point more to inflation than it does now. Surge in Oil Prices Could Drive Inflation Even Higher Skip Ad in 15 You may also like CloseCreated with sketchtool. Up Next CloseCreated with sketchtool. Your browser does not support HTML5 video. 0:00 PlayCreated with sketchtool. Paused Sound OnCreated with sketchtool. 0:00 / 4:02 ShareCreated with sketchtool.Closed Captions InactiveCreated with sketchtool. Surge in Oil Prices Could Drive Inflation Even HigherPlay video: Surge in Oil Prices Could Drive Inflation Even Higher Russia’s attack on Ukraine helped push the price of oil to more than $100 a barrel for the first time since 2014. Here’s how rising oil costs could further boost inflation across the U.S. economy. Photo illustration: Todd Johnson ENERGY Energy prices surged 27% in January from a year earlier, translating to 1.7 percentage points of inflation. That marked a big reversal from January 2021, when their fall subtracted 0.2 percentage point from inflation. Created with Highcharts 9.0.1Consumer prices, 12-month changeSource: Bureau of Labor Statistics Created with Highcharts 9.0.1Pandemic2019'20'21'22-4004080%All itemsGasolineNatural- gas service Gasoline, which comprises about half of energy consumption, surged 40% in January, generating 1.2 percentage points of inflation, with most of the rest coming from electricity and natural gas for home heating. The interruption to oil supplies caused by the Ukraine conflict will likely be offset by increased U.S. production, Mr. Amemiya said. Based in part on the futures markets that indicate crude-oil prices will flatten out then move down toward the end of the year, he expects energy prices to rise 9.4% in December from a year earlier and their contribution to inflation to shrink to 0.7 percentage point. DEALING WITH INFLATION Analysis from The Wall Street Journal, selected by the editors What Is Inflation? What to Know U.S. Inflation Hits 7.5% Lessons on Inflation, From Survivors of the '80s Food Prices Keep Going Up. What It Means for You Can the Fed Tame Inflation Without Causing a Recession? How to Inflation-Proof Your Investments The Cities With the Highest Inflation The Hidden Ways Companies Raise Prices The Wall Street Journal wants to hear from you. How is inflation affecting you? Are you a consumer, a worker or a business owner? Select one...ConsumerWorkerBusiness Owner Name Email By submitting your response to this questionnaire, you consent to Dow Jones processing your special categories of personal information and are indicating that your answers may be investigated and published by The Wall Street Journal and you are willing to be contacted by a Journal reporter to discuss your answers further. In an article on this subject, the Journal will not attribute your answers to you by name unless a reporter contacts you and you provide that consent. Write to Gwynn Guilford at gwynn.guilford@wsj.com Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8 Show Conversation Hide Conversation (77) Customer CenterSubscriber AgreementPrivacy NoticeCookie Notice© 2022 Dow Jones & Company, Inc. All Rights Reserved. Enjoy This One-Time Offer of $4/Month for 12 Months Thanks to the WSJ member who shared this article with you renewing onto $38.99/month for 12 months View Membership Options Read Article Copyright © 2022 Dow Jones & Company, Inc. All Rights Reserved