Economists Expect Supply Woes and Higher Prices Well into 2022

October 19, 2021

Supply-chain bottlenecks and upward price pressure are likely to continue weighing on the U.S. economy well into 2022, according to the economists surveyed in the Wall Street Journal’s most recent economic survey. The respondents have grown more pessimistic since July’s survey, increasing their inflation expectations and lowering their forecasts for short-term growth.

On average, the economists expect to end the year with an annual inflation rate of 5.25% in December, a slight moderation from the rate seen in recent months. If October and November have a similar rate, it would mark the longest period that inflation has been above 5% since 1991.

The economists expect inflation to moderate next year, falling to 3.4% by June, then to 2.6% by the end of 2022. Even with this moderation, the inflation rate is expected to remain above the Fed’s 2% target and the average of 1.8% seen in the decade leading up to the pandemic.

Economists also severely reduced growth forecasts for this year. On average, they expect a Q3 GDP growth rate of just 3.1%, down substantially from 7% when the survey was conducted in July. Expectations for GDP growth in the fourth quarter were also lowered to 4.8% from 5.4%.

Nearly half of those surveyed said that the biggest threat to growth in the next 12 to 18 months is ongoing supply-chain disruptions. Unfortunately, they do not expect the disruptions to subside anytime soon. Roughly 45% of the economists said it will take until the second half of 2022 for the bottlenecks to be sorted out.

If these projections come to fruition, it may force the Fed to raise interest rates to combat inflation. There is broad consensus among economists that the Fed will raise rates at least once in 2022. Almost 60% said they see a rate increase by the end of 2022, and of those, 16% expect an increase by June.

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