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The supply constraints plaguing the U.S. recovery show few signs of dissipating any time soon, weighing on growth and stoking inflation.

Forecasters lowered economic growth projections for this year and lifted inflation expectations into 2022 across a variety of metrics, according to Bloomberg’s latest monthly survey of economists.

Ongoing supply chain strains and labor market shortages are not only holding back economic growth but also raising costs for companies, said James Knightley, chief international economist at ING. “Demand outstripping supply not only means higher inflation, but missed growth opportunities.”

Compared to a year earlier, the personal consumption expenditures price index is now expected to rise 4% in the third quarter and 4.1% in the fourth, double the Federal Reserve’s 2% goal. Expectations for the core measure, which strips out the volatile food and energy components, were also revised higher.

Data out Wednesday showed inflation remained elevated in July. Though a moderation from the rapid pace seen a month earlier, the hefty price gains are eroding Americans’ buying power. Forecasters now expect the consumer price index to remain above 5% on a year-over-year basis at the end of the third quarter.

As prices of basic needs like food and rent continue to rise, Americans may begin curbing their discretionary purchases. A recent study by the Peterson Institute for International Economics found that workers in most U.S. industries are getting paid less than in December 2019, after adjusting for inflation.

The rapidly spreading Delta variant also threatens to slow consumption if fears or government restrictions limit spending on activities like dining out and travel.

Softer consumption

Consumer outlays are now forecast to grow at an annualized 4.5% pace in the current period, down nearly two percentage points from last month’s survey and a sharp deceleration from the sizzling 11.8% rate seen in the second quarter.

Bloomberg Economics also lowered their third-quarter consumer spending estimate, citing factors including a higher path for prices, lower volumes for vehicle purchases amid parts shortages, and some hangover after a stronger-than-expected, stimulus-fueled second quarter.

A softening pace of household demand paired with ongoing supply constraints weighed on expectations for economic growth. Gross domestic product is now seen rising 6.3% in the fourth quarter versus the same three months last year. That’s a downgrade from the 7.1% projection in the July survey.

Even so, the economy is still growing at a rapid pace. Averaging growth across the entire year, GDP is expected to post the strongest annual advance since 1984.

The survey was conducted August 6-12 and reflected responses from 64 economists.

—With assistance from Olivia Rockeman.