Oh the places prices have gone in 2022.
The consumer price index (CPI) was up 7.1 percent year-over-year in November, and although there is one more report due out in the next few weeks, the average for the year is likely to be in that range. While this is down from a peak of 9.1 percent in June, it's roughly the same as the annual rate for 2021. That means inflation was hovering around a 40-year high for the last two years, even as the underlying causes of inflation appeared to shift. As Federal Reserve Chair Jerome Powell recently pointed out, supply chain-constrained durable goods, such as used cars, are no longer the primary drivers of price increases, but rather the more labor market-dependent services sector.
Along the way in 2022, the monthly rate of inflation fluctuated from zero to more than a percent, while different types of products took turns under the spotlight of worried consumers. Over the summer it was baby formula, which saw shortages across the country. More recently, egg prices, which jumped nearly 50 percent in 2022, generated headlines.
What does all this mean for inflation in 2023? Let's survey the top predictions.
Using its preferred metric of the personal consumption expenditure (PCE) index, the Federal Reserve's own economic projections pegged the year-over-year rate at 3.1 percent. That would be a sizable decrease from 2021 and 2022, but still above the average of recent decades. The Fed has also undershot before, projecting an annual rate of just 5.6 percent in 2022.
Private sector economists were slightly more optimistic. A Bloomberg survey of 65 economists found that the median forecast for 2023 was 2.8 percent by the fourth quarter of next year.
Still, as reporter Jeanna Smialek explained in The New York Times this week, economists underestimated inflation going into 2022, leading some to question their judgment.
Yet looking at 2023 alone doesn't tell the whole story. Taking a longer view, a recent analysis from Morningstar Research Services predicted that inflation will be around 2.5 percent next year, but average a manageable 1.7 percent between 2023-2026.
"Although the short-term inflation rate is striking, a deeper look at the data suggests less reason for panic around longer-term inflation," Preston Caldwell, head of U.S. economics for Morningstar, wrote in a blog post. "For one thing, a handful of categories are responsible for today’s high inflation, and we don’t expect pricing pressure in these categories to persist."
Inflation, of course, is only one aspect of 2023's economic uncertainties. Against the backdrop of price predictions is another what-if scenario: Will next year bring a recession, and will that help bring down inflation? For some experts, the answer is almost certainly, but that it won't be enough to stop central banks from continuing to put pressure on the economy with rate hikes.
"Overall, we continue to see 2023 being a year of recession and sluggish growth for the world economy," said Oxford Economics in its 2023 outlook. "Despite inflation falling back, we don’t expect this will be enough to prompt most central banks to begin to cut policy rates next year."