EYE ON THE ECONOMY
INFLATION PRESSURE to Continue in 2022
I
BY: ROBERT DIETZ
n November, consumer prices were up 6.8% from a year ago — the largest year-over-year gain in almost 40 years, with further inflation expected. Supply-chain constraints and strong consumer demand have contributed to recent price increases in some sectors. For example, building material pricing in the separate Producer Price Index increased 14.1% on a year-to-date basis through November. This is triple the comparable growth rate from last year. Prices are higher for a broad set of materials, including lumber, which is now back above $900 per thousand board feet. Tariffs on Canadian softwood lumber are set to double to 18%, which is inexplicable given the need to reduce inflation pressure on consumer prices, including residential rents. A tighter labor market also warns of wage-based inflation pressure. For example, there are currently 410,000 open positions in the construction industry. NAHB expects this number to rise as the overall unemployment rate declines and the construction industry expands. Indeed, the skilled labor shortage will likely emerge as the top industry challenge as some supply-chain issues ease. Combating rising prices is now the priority for the Federal Reserve, whose leadership have retired the term “transitory” with respect to inflation expectations. At its December meeting, the central bank announced it will double its pace of tapering asset-backed purchases (including mortgage-backed securities). Projections indicate the possibility of three federal funds rate hikes in 2022 and perhaps three more in 2023. This pivot toward a tighter monetary policy is consistent with the NAHB interest rate forecast, which sees a 3.6% average 30year mortgage interest rate in late 2022. Despite ongoing macro challenges, including policymakers’ potential actions in response to the omicron variant, home builders are confident. The NAHB/Wells Fargo Housing Market Index increased one point to a level of 84, the highest reading since February. And home construction posted gains in November: Single-family starts increased 11.3% to an annual rate of 1.17 million, which is up 15.2% year to date. And multifamily production increased 12.9% to an annualized 506,000 pace, as rents rise and vacancy rents decline.
page 24
www.ncbia.com
December 2021
