It is “frustrating to see the bottlenecks and supply chain problems not getting better — in fact, at the margin, apparently getting a little bit worse,” Jerome H. Powell, the Fed’s chair, said while speaking on a panel on Wednesday. “We see that continuing into next year, probably, and holding inflation up longer than we had thought.”
Phil Levy, the chief economist at the logistics firm Flexport, said his company expected supply chain issues to begin easing next summer at the earliest. But as labor issues bubble up at long-overburdened ports, that could take even longer.
And in the near term, trouble finding shipping space could translate to shortages of toys and trinkets during the holiday season, causing companies to lift prices to make sure their supply lasts, Mr. Levy said.
“Ports are under strain, with ships backed up. We are short on truckers. We have warehouses that are packed full,” he said, later adding: “There was a sense a year ago that this would be a short-lived thing — there would be a craze, a squeeze, and then it would let up. The interpretation of ‘transitory’ has changed.”
While central bankers have long expected price gains to slow down, their guesses at how quickly that moderation will happen have been increasingly glum. In their latest economic projections, Fed officials forecast that the Personal Consumption Expenditures index will average 4.2 percent in the final quarter of 2021 — up from 3.4 percent in their June estimates — before declining to 2.2 percent by the end of next year.
The Fed aims for 2 percent inflation on average over time, though it is happy to tolerate higher periods as long as they are not expected to last.
Today’s price problem is a surprising one. Central bankers across advanced economies had spent most of the last decade wrestling with too-low, rather than too-high, inflation. That’s one of the reasons officials expect price gains to cool — once the pandemic shock recedes, long-running forces like population aging and technology should dominate.