Regrettably, it appears that inflation in 2022 will be considerably worse than analysts projected.
“As predicted, inflation has deteriorated this winter. And the extent to which it will improve later this year is uncertain,” Goldman Sachs noted in the research, as reported by CNN Business.
Initially, the banking behemoth forecast that core PCE inflation would fall to 3.1 percent by the end of the year, the Federal Reserve’s preferred pricing index. However, it has since increased that forecast to 3.7 percent.
The Fed’s current goal is to get the figure down to 2%. However, consumer goods prices have a distinct outlook. Currently, inflation on such commodities has reached a near 40-year high of 7.5 percent.
Goldman Sachs anticipates that figure will fall to 4.6 percent by the end of the year and 2.9 percent by the next year.
Here’s Why Goldman Sachs Is Pessimistic About Inflation in 2022
According to The Wall Street bank, two variables might exacerbate inflation: real inflation forecasts and a robust labor market.
“The first inflation increase may have persisted long enough and peaked high enough to affect wage and price setting,” the paper added.
Already pessimistic assumptions might feed economic tendencies that exacerbate the issue. Because when firms anticipate a period of high inflation, they take preemptive measures to safeguard themselves. And buyers frequently follow suit.
Thus, increasing inflation effectively becomes a self-fulfilling prophecy. And, strangely, the robust employment market isn’t helping us either. Goldman Sachs is now boasting the strongest market performance in postwar US history.
However, the boost in available jobs would almost certainly “threaten to ignite a mild wage-price spiral.” The corporation previously stated that the United States would avoid such a spiral.
And, of course, the present Ukraine invasion may make it more difficult for us to recover from inflation. Already, the battle is affecting energy costs. And as long as the scenario persists, those prices will increase.
As a result, most Americans will suffer a large increase in their cost of living. “The cost of Vladimir Putin’s invasion of Ukraine will fall on the typical American home,” RSM Chief Economist Joe Brusuelas stated.
Due to various circumstances, the price of a barrel of oil is presently over $100. According to Brusuelas, if that price hits $110, our inflation rate in 2022 will increase from 7.5 percent to 10%.
The revised economic projection will provide an “easier argument” for the Fed to continue raising interest rates. The bank has already announced another rate hike for next year, bringing four in 2023.