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How High? Experts Say Prices Aren’t Done Rising

Businesses in the United States see U.S. inflation only heading one way–up–according to the new “Quarterly Macroeconomic Business Trends” survey from S&P Global Market Intelligence.

Forty percent of the survey’s 470 U.S. respondents reported that their product prices were rising. In the Nov. 18 to Jan. 4 survey period, the companies reporting a decline in prices dropped just 4 percent from 16 percent a year ago. Manufacturing at 63 percent and retail at 58 percent continued to lead all industries in experiencing rising prices, but other industries such as finance also saw the effects of inflation.

Additional highlights from the survey results included 52 percent of U.S. businesses expected their product prices to continue rising this year, with only 3 percent expecting prices to decline. Nearly 50 percent or more businesses in all covered industries except software and IT services expect an increase in product prices.

Businesses cited global supply chain disruption, rising commodity prices and labor shortage as the top three reasons why prices were climbing higher. Companies fingered U.S. inflation as the third-biggest macroeconomic threat to sales after skills shortage and supply chain disruption and ahead of Covid-19, despite the surge in infections linked to Omicron.

Separately, Moody’s said in a new report on U.S. macroeconomics that it expects the country’s inflation rate to decline from the current level of more than 6 percent over the year ahead. Inflation at the end of the year is likely to taper off to about 3 percent, Moody’s said, noting the high degree of uncertainty around the inflation forecast because the rate will depend on how much the likely decline in goods price inflation in 2022 is offset by the rise in prices of services.

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“The surge in virus cases will no doubt dampen economic activity in pandemic-sensitive services industries in January but, as prior virus surges have shown, activity will rebound once the Omicron wave begins to subside,” Madhavi Bokil, senior vice president/CSR at Moody’s, said. “We now expect the carryover effects from higher goods prices to extend into the second half of this year as demand-supply issues for goods are taking longer to resolve.”

Moody’s noted that not unexpectedly, supply has not kept up with this rise in demand and prices of goods have surged. Supply disruptions have also contributed to shortages and pushed up prices.

“We had previously expected goods prices to peak in the fourth quarter of 2021, but we now expect the carryover effects from higher goods prices to extend into the second half of this year as demand-supply issues for goods are taking longer to resolve,” Moody’s said. “Still, goods prices could exert a degree of disinflationary pressure once the demand-supply equilibrium is restored to what is usual in ‘normal’ times by the end of the year.”

On the other hand, if Covid-19 becomes endemic, demand for services should recover. Pent-up demand for services and strong household balance sheets could facilitate a boom for pandemic-affected services like travel and create market conditions that allow for price increases, the report suggested.

“The net effect on inflation over the course of the year will depend on the balance between abating goods inflation and price trends for services, as well as to the extent to which items like rents continue to rise.,” Moody’s added. “A subdued services recovery resulting from continued Covid-19 health concerns or an overall dampening of demand from tighter monetary policy would result in faster easing of inflationary pressures this year.”

After the Bureau of Labor Statistics (BLS) reported that inflation climbed 7 percent for the year through December, the largest 12-month increase since 1982, President Biden said the report, which he noted also showed a meaningful reduction in headline inflation over last month, with gas prices and food prices falling, “demonstrates that we are making progress in slowing the rate of price increases.”

“At the same time, this report underscores that we still have more work to do, with price increases still too high and squeezing family budgets,” Biden said. “Inflation is a global challenge, appearing in virtually every developed nation as it emerges from the pandemic economic slump. America is fortunate that we have one of the fastest growing economies thanks in part to the American Rescue Plan, which enables us to address price increases and maintain strong, sustainable economic growth. That is my goal and I am focused on reaching it every day.”

On Thursday, the BLS reported that the U.S. Producer Price Index (PPI) increased a seasonally adjusted 0.2 percent in December. This followed advances of 1 percent in November and 0.6 percent in October. BLS said PPI increased an unadjusted 9.7 percent in 2021, the largest calendar-year increase since data were first calculated in 2010.