09/17/2021 | Press release | Distributed by Public on 09/17/2021 10:22
Key Takeaways:
The deceleration of the CPI was largely due to price declines of several transitory inflationary drivers, such as airline tickets, hotels, and used autos. While we had predicted price declines in some durable goods, such as autos, and an easing of other transitory inflationary pressures, such as those from the travel industry, the timing and magnitude of the latter was unexpected. It is likely that airlines and hotels have been hurt by concerns over the Delta variant, including limited business travel, and thus are not recovering as quickly as we had expected. Due to ongoing COVID-related dynamics, it's possible that we could experience a seesawing of prices and spending in some re-opening sectors, as we now expect airline ticket to rebound during the holiday travel season. Similar volatility is possible in other industries, as the August retail numbers showed a strong rebound in online and grocery store sales, while sales in restaurants and bars were flat after several months of increases. This may indicate a shift in spending back towards goods and shopping at home due to COVID-related concerns, though we also caution that the spike in online sales may have been affected by abnormal seasonal adjustments due to Amazon Prime Day occurring a month earlier than usual.
Our forecast continues to assume that consumers will shift their spending away from goods and into services, allowing businesses time to restock depleted inventories. However, if August's rebound in demand for goods continues, we could see increased price pressures in industries where supply chain bottlenecks are already severely limiting supply. Additionally, more sustained inflationary pressures, such as wage gains and housing price pressure on rents and owner's equivalent rent (OER), are expected to become more prominent. The former was evident in the NFIB small business survey, which showed persistently high numbers of firms struggling to find workers and thus planning on raising wages. This will likely continue to add upward pressure to prices and keep inflation elevated into 2022, even as the more transitory inflation rolls off. On top of wage- and rent-related pressure, the energy sector, where utilities production and prices jumped in August, is also likely to offset price declines elsewhere, keeping our near-term inflation expectations elevated.
On balance, our topline inflation and growth expectations are unlikely to change substantially, but our expected drivers of inflation may be affected. Further, additional inflation risks remain, as we could see a second surge in prices in services industries in 2021Q4 if the Delta variant peaks and health concerns subside, potentially causing elevated inflation readings further into 2022 than previously anticipated.
Nathaniel Drake
Economic and Strategic Research Group
September 17, 2021
Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.