OPINION: I believe inflation will fall back to around 2.5% by the end of next year due to unprecedented fiscal and monetary stimulus and pandemic-related supply constraints.
Is inflation here to stay? This is among the most-asked questions facing the U.S. economy—and the answer has ramifications for businesses and investors in a range of industries, from airlines to consumer electronics.
While GDP has already rebounded to pre-pandemic levels, GDP growth will continue, albeit at a much slower rate, through the balance of this year and into next. That will be a function of manufacturers being better able to provide enough supply of goods to meet consumer demand and consumers continuing to increase their spending on services at the expense of durable goods, as schools and offices reopen.
Lower inflation would be positive for airlines, manufacturers, food and apparel retailers, consumer product companies, trucking and shipping firms and consumer-electronics companies. As prices decline for raw materials such as oil, steel, plastics, cotton, wool and components, profit margins for these companies will stabilize—or improve for those companies that have held back on passing along those higher input prices to customers.
As a result, earnings growth should continue to improve for supply chain-impacted businesses in 2021 and 2022.
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