If the return to normal represented the overriding theme for 2021, then this year’s theme is likely inflation. According to the most recent data from the consumer price index, or CPI, the cost of key goods and services increased 9.1% over the year ended June 30. Naturally, many households are now focusing on CPI predictions to help prepare them for what may lie ahead.
Generally speaking, the economic backdrop doesn’t bode well for everyday working Americans. Mainly, the issue comes down to the purchasing power of the dollar. Since the start of the coronavirus pandemic, the erosion of currency strength equates to roughly 13 cents on the dollar. Essentially, this means that if you physically have $100 in your wallet, you actually have $87.
Based on the above narrow example, a loss of $13 isn’t that big of a deal. However, at scale, the currency erosion could equate to significant sunken value unless the Federal Reserve’s monetary tightening starts to take effect. For instance, for the median household income (in 2020) of $67,521, a 13% purchasing power loss equates to a nearly $9,000 impact.
Therefore, accurate CPI predictions represent critical warning signals for families to batten down the hatches. Here’s a look at some of the key sectors which may experience significant pricing pivots.
CPI Predictions for Food Prices
No matter what your financial status, everyone must eat, meaning that food security is essentially the most important consideration for all societies. According to data from the Bureau of Labor Statistics, food prices increased 10.4% on a year-over-year basis in June.
Unfortunately, the impact of inflation and supply chain disruptions appear to be taking its toll on the underlying industry. The Economic Research Service under the U.S. Department of Agriculture stated the following:
“Food price increases are expected to be above the increases observed in 2020 and 2021. In 2022, food-at-home prices are predicted to increase between 8.5 and 9.5 percent, and food-away-from-home prices are predicted to increase between 6.0 and 7.0 percent. Price increases for food at home and food away from home are expected to exceed historical averages and the inflation rate in 2021.”
Unfortunately, CPI predictions call for a tough time at the grocery store. Therefore, investors may want to stash away some extra funds just in case.
Fashion Slaps Customers with Higher Prices
Back at the start of the Covid-19 crisis, the fashion and apparel industry suffered significantly as department stores across the nation shut down. Deemed nonessential services by government authorities, consumers likewise eschewed high fashion for other relevant products.
But now that society is gradually returning to normal – along with evidence of easing supply chain disruptions – apparel makers are looking forward to fully opening their doors. But there’s one problem: in order to make up for the disruptions, sector players are planning to raise prices.
Fortune reports that “a worrying 15% of executives polled said they planned on increasing prices by more than 10% in 2022.”
Seeking Shelter from Unrelenting Inflation
Housing represents a controversial sector, as soaring inflation priced out many prospective homebuyers. However,
rising mortgage rates haven’t quite yielded the discounts in real estate prices that people were hoping for, with many sellers stubbornly committing to high asks — for now.
CPI predictions for housing are a difficult matter because of multiple clashing opinions. In June, the cost of shelter increased 5.6% over the trailing year. A combination of eroding purchasing power and sellers unwilling to part with their homes for less than top dollar contributes significantly to the pain point.
For a deeper look into the debate, readers can consult InvestorPlace’s housing market outlook for 2022 and 2023. In short, investors should carefully monitor core economic data, as reduced commerce could impact all sectors, including and especially housing.
Energy Prices in Focus
Aside from rising real estate prices, pain at the pump represented one of the negative hallmarks of life in 2022. But recently, drivers began noticing that gasoline prices have been dropping, which contradicts the implications behind past CPI predictions. In June, fuel oils and other fuels skyrocketed 70.4% YOY.
Naturally, consumers are wondering where energy prices will head next. Although factors such as the release of crude oil from the Strategic Petroleum Reserve have helped ease financial pressure on Americans, Mother Nature – not Uncle Sam – may be the ultimate arbiter here.
Record heat waves across Europe – perhaps best epitomized by raging fires and melted runways in the U.K. – have sunk the region’s energy crisis deeper into the hole. Demand for natural gas for electricity production accelerated as Europeans turned to air conditioners to ease the suffering.
However, this dynamic may have huge implications for energy costs broadly, meaning that investors should prepare for a challenging environment.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
