FX.co ★ Inflation to dim US economic outlook

A particular rise in prices is an essential driver of economic development. Just several years ago, low inflation was the main problem of developed countries, including the US, which is considered the world’s largest economy. Now, inflation is spiraling out of control, creating even graver difficulties.

In the upcoming year, US consumer prices are likely to go on climbing. According to the outlook provided by leading economists, in 2023, the US inflation will be higher than a month ago. Some analysts even emphasize the rising likelihood of a recession amid higher costs of borrowing. The forecasts are based on the poll of 65 economists conducted by Bloomberg.

Forecasts for the personal consumption expenditures price index, or the PCE index, which is the main inflation indicator for the US Fed, were upwardly revised for every quarter of 2023. Notably, a negative outlook was provided only for the first months of the new year. During the year, the price pressure may decline. By the last quarter of 2023, the PCE index may slide to 2.8% amid sluggish economic activity and high interest rates. At the moment, the likelihood of a recession is estimated at 65% instead of 60% announced in October.

What is more, a period of high inflation is likely to be longer than anticipated, while inflation itself could exceed the predictions made by Wall Street and the Federal Reserve. Meanwhile, consumer spending has little changed thanks to the strong labor market and higher salaries amid the rapid price growth.