Consumer News: It may take some time for prices to come down, economist cautions

Mark Zandi, of Moodys Analytics, says energy prices are the key

By Mark Huffman of ConsumerAffairs

• Moodys Analytics chief economist Mark Zandi says inflation pressures are likely to ease in the near term if energy prices stabilize and geopolitical tensions subside.

• Despite recent price increases, Zandi does not expect a sustained inflation surge, though he warns that higher oil prices could temporarily push consumer costs higher.

• The economist says the Federal Reserve remains focused on inflation risks, making near-term interest-rate cuts less likely until price pressures show clearer signs of cooling.

Inflation may remain elevated in the coming months, but Americans are unlikely to face a prolonged resurgence in price pressures, according to Moodys Analytics Chief Economist Mark Zandi.

In an interview with ABC News, Zandi said recent inflation concerns have been fueled largely by higher energy prices and geopolitical uncertainty, particularly tensions involving Iran and their effect on global oil markets. However, he suggested that if those pressures ease, inflation should gradually moderate.

But, he warns, it wont happen overnight.

Energy prices will dictate the future

The key issue is energy, Zandi said, noting that higher oil prices quickly ripple through the economy, increasing transportation and production costs that eventually show up in consumer prices. While those effects can temporarily lift inflation, they do not necessarily signal a long-term inflation problem.

The outlook comes as policymakers and consumers continue to monitor inflation after several years of unusually high price growth. Although inflation has accelerated in recent months, economists generally expect energy-related price increases to have a limited duration if global oil supplies remain stable.

Zandi warned that the Federal Reserve faces a difficult balancing act. Higher inflation would typically argue for maintaining or even raising interest rates, while slower economic growth could justify lower borrowing costs. According to Zandi, the recent inflation backdrop makes it less likely that the Fed will move quickly to cut rates.

Given the Fed is already clearly focused on inflation, this war would make it less likely they would cut rates further, Zandi told ABC News. He added that policymakers could eventually shift their attention toward employment and economic growth if the economy weakens significantly.

Cautiously optimistic

Despite the uncertainty, Zandi's overall assessment of the economy remains cautiously optimistic. He has said that economic growth continues, supported by business investment and other underlying strengths, even as consumers face pressure from higher prices and elevated borrowing costs.

For consumers, the short-term outlook suggests that inflation may remain uneven, particularly in categories tied to energy costs. But absent a major escalation in global conflicts or a sustained surge in oil prices, economists expect inflation to gradually move lower over time rather than reaccelerate sharply.

Zandi summed up the current environment as one marked by uncertainty but not alarm, emphasizing that the trajectory of energy prices will play a decisive role in determining whether inflation continues to cool in the months ahead.