Bloomberg survey: Economists expect inflation of more than 2% to persist into the mid-to-late 2023

According to Bloomberg's latest monthly survey, economists expect inflation to far exceed the Fed's target this year and take longer to fall back to its 2 percent target.

According to the median expectations of 76 economists, the average U.S. consumer price index will rise by 5 percent this year, up from 4.6 percent predicted last month. The survey was conducted on February 4-10, ahead of the latest CPI data released – official figures show that the CPI rose 7.5% year-on-year in January, the highest level in 40 years.

According to forecasts, the Personal Consumption Expenditure Price Index — the Fed's favorite measure of inflation — could rise by an average of 4.2 percent in 2022, up from 3.8 percent predicted in last month's survey. Economists say both inflation measures will see average gains of more than 2 percent in 2023.

Inflation has become a big problem for Fed policymakers, who are preparing to raise rates starting in March, and traders are betting that they will raise rates by 50 basis points next month.

Consumer prices rose across the board last month, suggesting that price pressure is widening from pandemic-related commodity categories such as cars to service sectors such as health insurance and rent.

"The significantly larger than expected CPI data could lead to more FOMC members supporting a more aggressive hike path. We expect inflation to worsen further before improving, peaking around 7.8 percent at the time of data release next month," Bloomberg economists Anna Wong and Andrew Husby said in a note on Thursday.

U.S. economic growth at the beginning of the year may also be hit hard. Economists comprehensively assessed the impact of the omicron variant and higher-than-expected inflation, halving the first-quarter GDP growth forecast to a discount of 1.5 percent per annum. Growth was slightly higher in the second quarter and lowered in the third quarter.

The weakness in the first quarter was largely attributable to consumer spending, which is now expected to grow by 1.8 percent, compared to 2.5 percent in the January survey. Inflation is eroding Americans' incomes, and disposable income is reduced after paying high prices for food and gasoline.

This article originated from the financial world