Friday, May 14, 2021 06:00 AM
  • Economists see consumer price index exceeding 3% through 2021
  • U.S. economy to expand at 9.3% in second quarter, survey shows

Economists are warming to the idea of hotter inflation into early next year.

The latest monthly survey by Bloomberg shows forecasters have raised their projections for several measures of inflationary pressures — the consumer price index, the personal consumption expenditures price index and the PCE measure excluding food and fuel — for each quarter through March 2022.

The CPI at the end of the second quarter this year will probably show a 3.8% increase from the same period last year, while the PCE price index is seen rising 3%, according to the survey of 71 economists from May 7 to May 13.

The latest projections, well above where they were at the start of the year, show the adjustments forecasters are making in response to supply shortages, shipping challenges, firmer demand and trillions of dollars in fiscal and monetary policy support.

“Supply capacity of the U.S. economy may not be able to keep pace with demand growth, which is already evident in supply shortages from semiconductors through to labor,” said James Knightley, chief international economist at ING. “We suspect inflation could remain more elevated for longer than the Federal Reserve is predicting.”

For their part, Fed officials view the pickup in price pressures as temporary and have signaled their intent to maintain ultra-easy policy even with inflation running above their 2% goal.

Read more: Fed Officials Have Six Reasons to Bet Inflation Spike Will Pass

Forecasts for the PCE core price index, favored by Fed officials, were raised above 2% for each quarter through January-March next year.

2Q 2021 3Q 2021 4Q 2021 1Q 2022
PCE price index (current) 3.0% 2.7% 2.7% 2.3%
PCE price index (prior) 2.6% 2.2% 2.3% 2.0%
Core PCE price index (current) 2.4% 2.2% 2.3% 2.2%
Core PCE price index (prior) 2.2% 1.9% 2.0% 2.0%

Economists also raised their second-quarter growth forecasts in anticipation that government aid, faster vaccinations and more social activity will provide a bigger boost. The median estimate calls for a 9.3% annualized increase in gross domestic product, up from 8.1% in the April survey.