Five reasons to expect US inflation to take another sharp leg higher – Nordea

US inflation will likely take another sharp leg higher. Here are five reasons why the broadening of inflation will also continue into 2022 in the view of economists at Nordea.

Broad wage growth leads to higher median prices

“Broad wage growth usually spills-over to a higher median CPI with a time-lag of 6-9 months, which will likely lead median prices higher through 2022. This is exactly the kind of inflation that the Fed fears the most.”

Prices on used cars are surging again

“The prices on used cars have started surging again and we need to pencil in material new spikes in the yearly pace of prices according to our model which also takes the Mainheim indicator intp consideration. We project that the used vehicle component will contribute with >1.5% by year-end, with risk to the upside.” 

Rent of shelter inflation is picking up the pace

“ Our model predicts YoY price growth just below 6% in the owners equivalent rent of resident (OER) component over the coming two quarters. Given our model predictions, the yearly contribution to core inflation from the OER component could be as large as 1.7%.”

The energy to food price feedback loop

“There is a negative feedback loop ongoing in food prices as higher energy prices lead to higher prices on fertilizers and ultimately higher prices on crops and food in general. The energy crisis is far from being over as Russia is still not delivering any gas via the Mallnow station at the Polish/German border. This is the exact week Putin promised to start filling the German underground storages from. Can we take him at face value? We doubt it.”

Vaccine mandate and restrictions to prolong supply issues

“Vaccine mandates likely continue to distort the Nonfarm reports in the US as well. This is wage inflationary, while continued restrictions in Europe and the US will keep consumption of goods elevated versus services, which is a key reason behind distressed supply chains.”