Inflation projected to cool down.
Caldwell 23 — Preston Caldwell, senior U.S. economist for Morningstar Research Services LLC, holds a Master of Business Administration from Rice University, 2023 (“Why We Expect Inflation to Fall in 2023,” Morningstar, May 26th, Available Online at https://www.morningstar.com/economy/why-we-expect-inflation-fall-2023-2, Accessed 06-24-2023)
We Forecast Inflation for 2023-27 From a Bottom-Up Perspective
Given the role of industry-specific shocks, we forecast inflation using a bottom-up methodology.
We’re projecting large deflation in prices for durable goods, food, and energy over 2023-27.
For durable goods, resolution of the semiconductor shortage should play a large role in expanding supply. A normalization of consumer spending mix will also shift demand away from durables (and other goods) and back into services.
For food and energy, prices should subside as these industries adjust to disruption from the Russia-Ukraine conflict and other factors.
We don’t expect the price spikes in energy and durables to be replaced by new problems elsewhere in the economy. We expect moderate wage growth and the absence of any long-lasting supply disruptions to keep general inflation at restrained levels. Inflation expectations (which can fuel high inflation in a self-fulfilling prophecy) also look restrained.
Fed tightening will cool off the overall economy substantially in 2023 and 2024, extinguishing the inflationary fire before it gets out of control.