Business Economists Expect Persistent Inflation: NABE Survey

A 48-member panel of business economists has sharply raised its expectations for inflation compared to its September forecast, with two-thirds predicting that wage increases will keep inflation higher over the next three years.

A survey released on Dec. 6 by the National Association for Business Economics (NABE) shows that its panel of forecasters expects consumer prices to rise 6 percent in the final quarter of the year compared to the year-ago quarter, marking a sharp upward revision to the 5.1 percent rate of inflation the panel predicted in September for the same period.

Julie Coronado, vice president of NABE, said that 71 percent of the forecasters expect the Fed’s preferred inflation gauge, the so-called core PCE price index, to remain above the central bank’s 2 percent target until at least the second half of 2023.

“NABE Outlook survey panelists have ramped up their expectations for inflation significantly since September,” Coronado said, with the survey showing forecasters expect the core PCE inflation rate to hit 4.9 percent for 2021.

Core PCE running at an annual pace of 4.9 percent would be significantly higher than the median projection from the Federal Reserve, which said in its most recent summary of economic projections (pdf), issued in September, that it expects a reading of 3.7 percent for all of 2021. The Fed’s September prediction was itself sharply higher than its June forecast of 3.0 percent.

While the Fed expects core PCE to drop significantly next year to 2.3 percent and fall again in 2023 to 2.2 percent, Federal Reserve Chair Jerome Powell acknowledged in recent congressional testimony that factors pushing inflation higher would stick around “well into next year,” adding that it’s “time to retire” the word “transitory” from the central bank’s messaging around inflation.

Surging inflation, which in the 12 months through October hit a 31-year high of 6.2 percent and more than doubled its monthly pace to 0.9 percent compared to September, has put pressure on the Fed to tighten its loose monetary policy settings. Policymakers are mulling an accelerated timeline for phasing out the central bank’s massive bond-buying program, which has provided a tailwind to risk assets like stocks. A faster taper schedule would make room for an earlier rate hike by the Fed.

While Powell said the Fed’s test for scaling back stimulus has been met on the inflation front, he said the labor market recovery has been lagging. The jobs recovery is a key touchstone for the Fed, with the central bank reluctant to pull back on stimulus too quickly to ensure a long economic expansion for the labor market recovery to firm up.

While the U.S. economy remains around 2.4 million jobs below pre-pandemic levels, the unemployment rate has fallen to 4.2 percent and the labor force participation rate has edged up.

While nearly 60 percent of the NABE panelists expect the job market to reach full employment by the end of next year, views were split over whether the labor force participation rate, which inched up to 61.8 percent in November, would ever return to its pre-pandemic level of 63.3 percent in February 2020.

Of the half that expects a full rebound in the labor force participation rate, just 5 percent predicted this would take place by the end of next year, with around 25 percent expecting a protracted recovery in the measure through 2024 or even later.

The NABE panel’s views on the persistence of upward price pressures dovetail with remarks made by a number of economists who have raised the alarm on the stickiness of the current bout of inflation. 

By Tom Ozimek


Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he’s ever heard is from Roy Peter Clark: ‘Hit your target’ and ‘leave the best for last.’