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US The Inflation Outlook Four Scenarios for 2023-2025

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1. U.S. Bureau of Labor Statistics, "12-month percentage change, Consumer Price Index, selected categories," accessed March 2023. 2. Federal Reserve Bank of St. Louis Economic Research, "Unemployment Rate," accessed March 10, 2023. 3. U.S. Bureau of Labor Statistics, "12-month percentage change, Consumer Price Index, selected categories," accessed March 2023. Overview: The Inflation Outlook Revised A little over a year ago, amid growing concerns over rising inflation in the U.S., Deloitte published The Inflation Outlook, which described four scenarios to suggest how the data available then could point to very different futures for inflation over the following 12-24 months. Inflation did, in fact, increase more than many people had expected: Russia's invasion of Ukraine, combined with China's "zero-COVID" policy, caused serious supply chain problems that, along with other factors, drove up costs and prices. By June 2022, inflation peaked at 9.1% 1 , even as the U.S. Federal Reserve raised interest rates to try to cool the economy and bring down rising prices. In 2023, we have a year's worth of new data and new uncertainty: Unemployment is at a 50-year low, and the labor market remains tight even after a year of rising interest rates 2 . As of March 2023, inflation has fallen consistently for 9 months to 5.0% 3 . However, this is still far from the Fed inflation target of 2.0%. Questions remain regarding whether inflation will continue to fall and whether the historically low unemployment figures will show up in rising wages. Most recently, shocks in the banking sector have raised concerns about how the Fed can reign in inflation without causing additional widespread problems in the economy (e.g., declining valuation of low-interest bonds, falling consumer confidence in bank liquidity). So, while the drivers of inflation and the contributors to economic uncertainty have changed, the need to understand these drivers, analyze their impact, and prepare for a world of high uncertainty remains critical to the success of any future-focused enterprise. The question remains: What can business leaders do to prepare their organizations to prosper no matter what the future of inflation holds? In continued collaboration with Deloitte's U.S. and Global economists, we have updated our scenarios and extended our hypotheses through the end of 2025 to incorporate key changes to the economic environment. As always, these scenarios are neither forecasts nor predictions, and we don't claim to cover every possibility. Rather, our hope is that they inspire thinking about how the future could defy our expectations and surprise us—and what we may want to prepare for or monitor as a result. What's Inside • Changes to the U.S. inflationary environment since the start of 2022 • Key macro uncertainties that may continue to impact the economic outlook • Four potential economic scenarios spanning a 3-year horizon • Recommendations for "no-regrets" moves that enable businesses to capitalize, regardless of scenario • Key questions to address economic outlook uncertainty 2 Copyright © 2023 Deloitte Development LLC. All rights reserved.

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