An outright fall in commodity prices is not guaranteed. Take cars: The rapid growth in new and used car prices last year was a major driver of inflation, and many economists expect those prices to fall in 2022. But Jonathan Smoke, the chief economist at Cox Automotive, said ongoing shortages mean new car prices will likely continue to rise, and could skip supply-side problems to mitigate the projected drop in used car costs.
And service inflation is now coming in fast, too. It ran at 4.6 percent for the year through January, the fastest pace since 1989, and posted large monthly gains since the fall. That’s enough to keep inflation above the Federal Reserve’s 2 percent target, even if product prices stop rising.
Although goods have taken up a larger share of the household budget in recent months than they did before the pandemic, Americans still spend nearly twice as much on services as they do on goods in general.
“You don’t need a lot of extra services inflation to make up for the inflation of your lost goods,” Mr. Furman said.
Restaurants, hotels and other discretionary services aren’t the only places where sustained demand can add up to limited supply, Mr Furman argued. Many non-emergency health services saw demand decline during the pandemic and are now experiencing a rebound amid shortages of nurses and other skilled workers.
Frequently asked questions about inflation
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar won’t go as far tomorrow as it did today. It is usually expressed as the annual price change for everyday goods and services such as food, furniture, clothing, transportation, and toys.
Rent — which is the largest monthly expense for many families and plays a major role in determining overall inflation — has also been rising rapidly. In cities such as Tampa, Fla., Spokane, Wash., and Knoxville, Tenn., listed rents rose 30 percent or more in the fall from a year earlier, according to data from Apartment List.
Igor Popov, chief economist at Apartment List, said the frantic pace of new rent increases is unlikely to repeat itself this year. But many rents will reset this spring and summer at higher market rates, he said, adding they would likely continue to rise as long as wages did the same.