Inflation Could Ease Next Year

Inflation Could Cause Inventory Gluts in 2022

With prices for everything soaring in recent months, some consumers are feeling like there’s no end to inflation in sight. But current inflation trends could lead to a glut of inventory in 2022, especially for appliances, vehicles, and furniture. Prices for these items saw double-digit gains last month.

Inflation is also driving prices for ancillary products and services higher. The lack of new vehicles makes it difficult for rental car companies to replace vehicles in their fleets. As a result, there are fewer cars to rent, which drove prices 49.2% higher in October. The cost of buying a used car or truck is up 44% this year.

Auto, Retail Shortgages Could Ease

It can be hard to imagine inflation will come down given the current environment, but even small improvements in the supply chain could have a big impact. The automobile industry has a lot of half-built vehicles waiting for semiconductors and other components to be added. Some vehicle manufacturers have been stockpiling components to prevent future shortages which could make demand appear stronger than it is. Once those parts are installed, vehicle makers could end up with excess supply.

Meanwhile, retailers have been urging consumers to start their holiday shopping early, but also announced last week that they have enough inventory to meet Black Friday demand. If consumers are already done with their holiday shopping, it could lead to excess inventory at stores like Walmart (WMT), Target (TGT), and TJMaxx (TJX).

Fewer COVID-19 Cases Could Lead to Lower Prices

Inflation may also ease next year if the number of COVID-19 cases continue to decline and the risk from the disease wanes. Vaccine boosters and antiviral pills may help achieve this. Less risk from the virus could prompt consumers to spend more on services and less on goods.

At the same time, lower COVID-19 cases would ease supply-chain delays in key manufacturing hubs around the world. Though there is still much uncertainty surrounding inflation, it could get back to the Fed’s 2% target more quickly if COVID-19 concerns ease and supply chain problems improve.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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