In its mid-session review on Friday, the OMB said it expects fourth-quarter consumer prices to rise 4.8% from the prior year period—higher than its May forecast of 2% . However, it predicted that inflation would then start declining. For next year’s fourth quarter, the OMB sees consumer prices rising 2.5%, up from its May prediction of 2.1%, before stabilizing at 2.3% in the last quarter of 2023. Prices have increased steadily this year in line with the economic recovery after last year’s lockdowns to slow the spread of coronavirus. The rush of people eager to get outside and spend again boosted economic growth, but also caused demand to outstrip supply, which has been hamstrung by pandemic-related shutdowns. However, OMB and the Federal Reserve expect supply constraints to fade as the world returns closer to normal and price pressures ease.The Fed has a long-term average inflation target of 2%. “As the economic recovery progressed, several pandemic-related supply-side issues began to materialize, some of which have led to a temporary uptick in near-term inflation,” OMB said. “For example, a combination of extreme weather events, shipping delays, backlogs at ports, and other pandemic-related supply-side factors have led to shortages of key production inputs such as microchips and lumber, among other items.“ In June, about 60% of the 0.9% increase in consumer prices from May was due to chip shortages in the motor vehicle market, the OMB noted. It also pointed out prices have been increasing in services particularly affected by the pandemic, like airfare and hotels, as people start traveling again. Have a question, comment, or story to share? You can reach Medora at medoralee@thebalance.com
