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Disinflation for Consumer and Producer Prices

March 4, 2022

As we approach the peak of the business cycle, ITR Economics is forecasting a period of disinflation to follow - when can businesses expect that to occur? Catch our newest TrendsTalk episode with ITR Economist and Speaker Lauren Saidel-Baker to learn more.

 

 

 

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The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.


Hi, I'm Lauren Saidel-Baker, coming to you today with an ITR Economics TrendsTalk from the road. Yes, we are back out speaking, and as a result, I wanted to address one of the questions that I've been getting very commonly when I'm out on the road.

Now, as you probably know already, our forecast at ITR is for disinflation to take hold across both consumer and producer prices within the first half of this year. In fact, we think we're very close to that cyclical peak for prices. So let's unpack that a little bit, because I've gotten a lot of pushback personally. Companies are saying, "How can you call for disinflation when I still see very high levels of price increases from my own suppliers and I'm putting through my own price increases to my customers at a rate that we haven't done in years, if not decades?"

Well, you're right. Where we are right now across both the consumer price index and the producer price index is an accelerating growth trend. That means that prices are still rising at an accelerating pace. That is inflation. But we're close to the peak of the business cycle. As you probably know from following us already, we expect that peak growth rate across the US industrial economy to come within the first quarter of 2022. By mid this year, that demand pull is going to start to ease off a bit. As a result, we should start to see an impact in prices. Again, we're very close to that peak, so you're probably feeling very frenetic price increase. There is so much activity, so much demand out there that it really will be reflected for a while yet in higher costs. But what is turning is that rate of growth.

When we talk about inflation, we do so as a percentage. What is the percent change in prices from one period to another? When we talk about in inflation, disinflation has to be decoupled from deflation. Disinflation is still a positive rise in price levels, just at a slowing pace of growth. So that inflationary number is starting to come down. But disinflation is not deflation. Deflation is that period when we have actual decrease, actual decline in price levels. We do not expect that we will enter a deflationary period this cycle, so expect disinflation. And if you are one of those companies still putting through price increases at that pace you've never done before, well take advantage of it, because we fully expect that customers are aware of the inflationary environment, so you're probably getting much less pushback than you otherwise would for these levels of price increases. But I also want you to be aware that 2022 will not be a repeat of 2021. We're entering a different phase of the business cycle. So look ahead. Disinflation, not deflation is in our future.

Thank you so much for joining me today for this episode of ITR Economics TrendsTalk from the road. I'm Lauren Saidel-Baker. Let's talk more soon.

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Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.