Many economists, Federal Chair don't expect inflation to last long

The Labor Department says consumer prices have spiked 5.4% over last year. But how long will this inflation last?


While economists say prices for some things will stay high for a while, many expect inflation to decrease next year.

The latest CPI data was largely driven by skyrocketing used car and truck prices, up 10% in June, due to the worldwide semiconductor chip shortage that's driving up new car prices.  

Dr. Jorge Barro at Rice University's Baker Institute says he expects car prices to come back down as chip manufacturing catches up.

"I think the outlook I saw was one to two years on catching back up in the chip manufacturing process," Barro said.

Travel prices are expected to stay high until consumers satisfy their wanderlust after being pent up for a year.

"A lot of people skipped out on their vacation last year. Maybe they have a larger budget for a vacation this year," Barro explained. "To that extent, it could be a bump."

The Houston Association of Realtors reports June's single-family home sales were up 13.6% over last June, and up 25.9% over last year.  Many investors are betting home prices will continue to climb, as buyers seize low-interest rates and inventory remains low.  

"I think in particular, a shift in remote work," Barro said. "So if you have more people working at home, people will be spending more on their house and dwelling."

Over the last 12 months, the food index was up 2.4% and the energy index rose 24.5%.  Barro says food and gas prices could stay volatile.  

Federal Reserve Chair Jerome Powell addressed Congress, pushing back on inflation concerns, and reiterating the central bank's commitment to stimulating the economy.

"The very high inflation readings are coming from a small group of goods and services that are directly tied to the reopening of the economy," Chairman Powell told lawmakers.

But Barro cautions more stimulus could stimulate more inflation.

"If they continue to keep interest rates artificially low for an extended period of time, then we could see more persistent inflation," he said.

A Bank of American survey out this week indicates more professional investors believe inflation will be temporary.