We’re sorry to report, but it looks like 2022 inflation is going to be even worse than the experts predicted.
Originally, the financial giant had predicted that the core PCE inflation, which is the Federal Reserve’s preferred price metric, would dip to 3.1% by the end of the year. But now it is raising that outlook to 3.7%.
The Fed currently aims to reduce the number to 2%.
Consumer goods prices, however, have a different outlook. Currently, we’re seeing inflation on those goods hitting a near 40 year high of 7.5%. Goldman Sachs expects that to drop to 4.6% by the end of this year and 2.9% by the end of next year.
Here’s Why Goldman Sachs Has a Grim Outlook on 2022 Inflation
According to The Wall Street bank, there are two factors that could worsen inflation—the actual inflation predictions and the strong job market.
“The initial inflation surge might have lasted long enough and reached a high enough peak to raise inflation expectations in a way that feeds back to wage and price setting,” the report continued.
The already dismal expectations could fuel economic trends that may make the situation even worse. Because when businesses expect high inflation, they try to be proactive and protect themselves from the hit. And consumers tend to do the same.
So essentially, higher inflation becomes a self-fulfilling prophecy. And oddly, the strong job market isn’t doing us any favors either. Right now, Goldman Sachs is reporting the best market in postwar US history.
But the surge of open positions will likely “threaten to ignite a moderate wage-price spiral.” The company previously wrote that the U.S. wouldn’t experience that sort of spiral.
And, of course, the current Ukraine invasion could hinder our ability to rebound from inflation. The war is already affecting energy prices. And as the situation continues, those prices will continue to rise.
In turn, most Americans will see a significant jump in the cost of living. “The average American household is going to bear the burden of Vladimir Putin’s invasion of Ukraine,” RSM chief economist Joe Brusuelas said.
Due to many factors, the cost of a barrel of oil is currently sitting at about $100. If that price reaches $110, our 2022 inflation rate will jump from 7.5% to 10%, according to Brusuelas.
The new economic forecast will make it an “easy case” for continuous rate hikes by the Fed. The bank has already announced another rate increase next year, which will mean that 2023 will see a total of 4.