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After a shocker in 2021, where might inflation go in 2022?

We chart two alternative paths THE ONLY thing that proved transitory about inflation in America in 2021 was the consensus that it would subside. The left-hand chart shows that analysts consistently revised up their predictions, trailing reality. Consumer prices are now rising by nearly 7% compared with a year earlier, the fastest pace since 1982. What does the future hold? The right-hand chart presents two scenarios. In the first, month-on-month inflation immediately falls back to its pre-pandemic trajectory. Even so, it would take until the end of 2022 for annual inflation to slow to the 2% pace that used to be the norm. In the second case, consumer prices rise at the same monthly clip seen over the past year. Annual inflation would soar to nearly 8% in February, and stay elevated. Either way, one prediction seems rock-solid: the Federal Reserve will start raising interest rates in 2022, as the central bank itself indicated on December 15th. This article appeared in the Finance & economics section of the print edition under the headline “After a shocker in 2021, where might inflation go in 2022?”

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