10/15/2021 | Press release | Distributed by Public on 10/15/2021 11:01
Headline CPI was tempered somewhat by declining prices for hotels and airlines, which continued to be hit by low levels of business travel and continuing Delta variant concerns. We expect upcoming holiday travel will push up price growth in these industries in Q4. Q4 CPI is also likely to be impacted by rising energy costs, as prices for natural gas, oil, and coal have surged recently. Rising energy prices, as well as continuing supply chain bottlenecks, are also continuing to impact the PPI, as final demand goods prices increased rapidly again in September. Though we expect energy prices to stabilize and ultimately drag on inflation in mid-2022, we have upgraded our near-term inflation forecast due to near-term increases in energy costs, growing pessimism about how quickly supply chain issues can be resolved, and the transition of consumer spending away from goods and into services occurring more slowly than anticipated. Owners' equivalent rent (OER) also accelerated in September, and we believe further growth is likely to persist through at least 2022, given that OER typically lags home price growth. Therefore, although we expect inflation to peak in 2021 Q4, we anticipate elevated inflation readings throughout 2022.
We do expect that some transitory inflationary pressures will begin to roll off, such as prices for many durable goods and energy. The modest 0.1 percent increase in core PPI, which is sometimes thought to lead CPI, supports this notion. Still, we believe wage and price pressures are likely to persist, as the number of job openings remain near the highest level on record and small businesses continue to report that they are raising both worker compensation and average selling prices. Further, the record number of quits indicates that workers are confident they can find better paying jobs as worker bargaining power is the highest it's been in recent history.
Retail sales rose for the second straight month and moderately outpaced CPI gains, consistent with our expectation that real consumption will grow modestly through the end of the year. However, we believe the nominal increase in auto sales this month largely reflects higher auto prices and the fact that manufacturers are producing more expensive, higher margin cars due to the ongoing semiconductor shortage. Therefore, we expect subdued auto sales, as well as some continuing reluctance to return to normal levels of spending on services, to drag on consumption growth in 2022.
Economic and Strategic Research Group
October 15, 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.