Outright declines in goods prices are not guaranteed. Take cars: Rapid price growth in new and used autos was a big driver of inflation last year, and many economists expect those prices to dip in 2022. But Jonathan Smoke, the chief economist at Cox Automotive, said continued shortages mean prices for new cars are likely to continue rising, and issues with new car supply could spill over to blunt the expected decline in used car costs.
And services inflation is now also coming in fast. It ran at 4.6 percent in the year through January, the quickest pace since 1989, and it has been posting large monthly gains since autumn. That is enough to keep inflation above the Federal Reserve’s 2 percent goal even if product prices stop accelerating.
While goods have taken up a bigger chunk of household budgets in recent months than they did before the pandemic, Americans still spend nearly twice as much on services as on goods overall.
“You don’t need a lot of extra services inflation to make up for your lost goods inflation,” Mr. Furman said.
Restaurants, hotels and other discretionary services aren’t the only places where persistent demand could run up against limited supply, Mr. Furman argued. Many nonurgent health care services saw a decline in demand during the pandemic and are now experiencing a rebound amid a shortage of nurses and other skilled workers.
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Rent — which is the biggest monthly expense for many families and plays a big role in determining inflation overall — has also been rising at a rapid clip. In cities such as Tampa, Fla., Spokane, Wash., and Knoxville, Tenn., listed rents were up by 30 percent or more in the fall from a year earlier, according to data from Apartment List.
Igor Popov, the chief economist at Apartment List, said the breakneck pace of new rent increases is unlikely to repeat itself this year. But many rents will be resetting at higher market rates this spring and summer, he said, adding that they were likely to continue rising as long as wages did the same.
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