OUR EXPECTATIONS
Inflation in 2022 is set to peak at its highest level in four decades, but we think there’s less cause for concern in 2023 and beyond. High demand during a period of easy-money policy combined with supply chain constraints led to a drastic and rapid rise in prices between 2021 and 2022. As the issues related to supply chain begin to resolve and the Fed’s rate hikes slow the pace of the economy, we believe inflation will come down significantly. Morningstar predicts that the average annual inflation rate over the next 4 years will be 1.7%. This would bring long-term inflation rates closer to the Fed’s 2% annual goal, rather than the ~6.1% price increase we’ve seen this year.
SIGNIFICANT SECTORS
Shelter, energy, vehicles, and core goods are some of the largest contributors to the recent spike in prices. There are signs in each of these categories that prices are coming down. For example, in the second half of 2022, rent prices began to fall for the first time in nearly two years. Because shelter accounts for 32.8% of the Consumer Price Index, CPI levels are likely headed significantly lower in the near future. Below is a chart depicting the effects each sector has had on inflation over the past three years.
SIGNIFICANT SECTORS
Shelter, energy, vehicles, and core goods are some of the largest contributors to the recent spike in prices. There are signs in each of these categories that prices are coming down. For example, in the second half of 2022, rent prices began to fall for the first time in nearly two years. Because shelter accounts for 32.8% of the Consumer Price Index, CPI levels are likely headed significantly lower in the near future. Below is a chart depicting the effects each sector has had on inflation over the past three years.
Sources:
>https://investorplace.com/2022/09/shelter-costs-begin-to-ease/
https://www.morningstar.com/articles/1113268/article
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