"US High Inflation to Persist Until End of Next Year... Supply Chain Disruptions Continue Through Q2"

Economist Survey "Consumer Price Inflation Expected to Stay in 5% Range Until December"
Buttigieg, US Transportation Secretary, Expresses Concern "Logistics Challenges Will Continue Next Year"

[Photo by AFP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min, Reporter Park Byung-hee] It is forecasted that the supply chain disruptions in the United States will only be resolved after mid-next year, and consequently, high inflation will persist until the end of next year. The U.S. Secretary of Transportation has also expressed concerns that supply chain confusion will continue into next year.

The Wall Street Journal (WSJ) reported on the 17th (local time) that the expected inflation rate for next year has increased compared to the June survey, based on a survey conducted from October 8 to 12. This implies expectations of prolonged inflation.

The average forecasted consumer price inflation rate for December this year by economists who responded to this survey was 5.25%. This is slightly lower compared to the June survey. Inflation rates are expected to remain at similar levels in October and November. The U.S. consumer price inflation rate maintained a 5% range for four consecutive months through September. If the forecast holds, WSJ reported that the U.S. consumer price inflation rate will have maintained the 5% range for the longest period since 1991.

Economists predicted that the consumer price inflation rate will fall to 3.4% by June next year and further decline to 2.6% by December. This means it is expected to remain above the Federal Reserve's monetary policy target of 2% until the end of next year. The average consumer price inflation rate in the U.S. during the decade before the COVID-19 pandemic was 1.8%.

The reason economists expect prolonged inflation is due to supply chain disruptions. When asked when they expect supply chain issues to be resolved, the largest share, 33.3%, chose the second quarter of next year. Those who selected the third and fourth quarters of next year accounted for nearly half, 45%. The response rate expecting resolution in 2023 was also as high as 15%. In contrast, only 3.3% expected resolution within this year.

Supply chain disruptions were also identified as the biggest factor complicating economic outlooks. About half of the survey respondents cited supply chain disruptions as the greatest economic threat over the next 12 to 18 months. The proportion citing labor shortages was around 20%. Only 8.2% identified COVID-19 as a major risk factor.

Pete Buttigieg, U.S. Secretary of Transportation
Photo by EPA Yonhap News

A U.S. government official also forecasted that supply chain breakdowns will continue into next year. Pete Buttigieg, U.S. Secretary of Transportation, appeared on CNN that day and said, "Many of the (logistics) difficulties we are experiencing this year will continue into next year," predicting that supply chain conditions will be difficult to improve until next year.

The Secretary of Transportation, responsible for resolving logistics congestion at U.S. ports and the worsening land logistics due to truck driver shortages, also anticipated the continuation of supply chain breakdowns.

While emphasizing the need for infrastructure investment, Secretary Buttigieg diagnosed that a major reason for the supply chain breakdown is strong demand. He stated, "Retail sales are breaking through the roof. Because President Biden has successfully led the economy out of recession, incomes have increased, leading to higher demand." This interprets the supply chain issues as being caused more by demand than supply.

Economists pointed out that ongoing supply chain disruptions will cause inflation, which in turn will suppress consumption and burden the economy. Accordingly, economic growth forecasts have been significantly lowered. In the June survey, the expected U.S. economic growth rate for the third quarter of this year was 7%, but this time it was only 3.1%. The fourth quarter growth forecast also dropped from 5.4% to 4.8%.

Michael Brown, Chief U.S. Economist at Visa, said, "Rising prices will reduce consumers' real purchasing power," adding, "Consumption restrictions will impact economic growth rates."