
In our opinion, inflation here in the U.S. has more than likely reached its zenith and is poised to continue to decelerate in 2023. The shift in demand from the goods side of the ledger to services has become increasingly apparent. According to Consumer Price Index (CPI) data, commodities less food and energy commodities have seen its annualized rate of increase plummet over the last nine months, falling from +12.3% to +3.7% in November. We expect this trend to be sustained in the year ahead as the effects of the COVID-19 lockdown continue to recede into the past.
While getting inflation back down toward the Fed’s “2% threshold” may remain elusive due to the service sector, the aforementioned shift in demand is expected to reduce overall price pressures in 2023.

Source: Bureau of Labor Statistics, data through November 2022.
One source of concern from the U.S. consumer outlook has been the fact that wage growth has not kept pace with the rise in inflation. While there’s been no visible evidence of any adverse impacts on household spending as yet, eventually, this discrepancy, if continued, will more than likely take its toll.

Source: St. Louis Fed (FRED), data through November 2022.
IMPORTANT INFORMATION
Unless otherwise stated, all data as of November 2022.
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