The Clashing Forces That Will Drive U.S. Inflation in 2022

Things are about to get worse -- but after that, they should steadily get better. That’s roughly how economists envisage the path of U.S. inflation in the year ahead.

Data on Wednesday may show that consumer prices climbed 7.1% in December from a year earlier -- the fastest annual pace in four decades, according to the Bloomberg survey median forecast. That may prove to be the high-water mark, or close to it, as the forces that have driven inflation up during the pandemic are expected to weaken.

Supply networks are seen becoming somewhat more orderly by later in the year. There’s unlikely to be a repeat of the lockdown-era splurge on big-ticket goods, which sent those prices soaring. Some key commodities including oil are already off pandemic highs, the Federal Reserve is hitting the monetary-policy brakes, and statistical quirks will tip the scales toward lower inflation prints.

Add all those things together and it explains why most economists project inflation will slow to less than 3% by the end of 2022. Then again, they expected price pressures to have been more contained last year, too -- largely failing to anticipate the pandemic price spike.

They could be overly optimistic now as well. Rents are poised to accelerate, according to real-estate industry measures that typically prefigure the official data. Wages are gaining momentum too, especially at the lower end of the pay scale, and could keep rising given the appetite for labor. Omicron or subsequent coronavirus variants risk prompting further rounds of factory shutdowns and supply-chain snafus.

Following is a roundup of some key factors that will determine whether red-hot inflation simmers down or lingers for longer.