US Inflation Rate Expected to Exceed Fed's Monetary Policy Target Through 2023

Wall Street Journal Survey Predicts 2023 Annual Average Inflation Rate of 2.58%

[Photo by EPA Yonhap News]

[Asia Economy Reporter Park Byung-hee] A survey has revealed that the U.S. consumer price inflation rate is expected to exceed the Federal Reserve's (Fed) monetary policy target through 2023.

The Wall Street Journal (WSJ) reported on the 11th (local time) that in the May economist survey, the core inflation rate (year-on-year) for the fourth quarter of this year was estimated at 3.2%. Core inflation refers to the inflation rate excluding the highly volatile food and energy items. Economists predicted that the core inflation rate for 2022 and 2023 would fall slightly short of 2.3%.

WSJ concluded that the average annual core inflation rate through 2023 was estimated at 2.58%, the highest level since 1993. Furthermore, if economists' forecasts are correct, the Fed may need to raise the benchmark interest rate sooner than expected.

The Fed maintains the view that the current inflation is temporary. This stance was reaffirmed in the semiannual monetary policy report released on the 9th. Fed Chair Jerome Powell is scheduled to testify on monetary policy before Congress on the 14th and 15th.

However, in the WSJ survey, economists appear to question whether the current inflation is as temporary as the Fed expects.

Joel Naroff, Chief Economist at Naroff Economics, diagnosed the current situation as "a transition to an era of high inflation and high interest rates not seen in the past 20 years."

Inflation indicators are soaring. The inflation indicator emphasized by the Fed is the Personal Consumption Expenditures (PCE) price index. In May, the PCE price index rose 3.9% year-on-year, nearly double the Fed's monetary policy target. The average core PCE inflation rate from 1995 to 2019 was 1.7%.

The Consumer Price Index (CPI), compiled by the Department of Labor, has also surged recently. The May CPI inflation rate recorded 5%, the highest in 13 years. Typically, the CPI shows a higher inflation rate than the PCE price index.

In the survey, economists also expected the June CPI inflation rate to be 4.7%. They further forecast the year-end CPI inflation rate to decline to 4.1%, with CPI inflation rates for next year and the year after expected to range between 2.4% and 2.7%.