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Economic Forecasts

Low Inflation Likely to Last Awhile

Kiplinger's latest forecast on inflation

GDP 2.1% growth in ’17, following 1.6% in ’16 More »
Jobs Hiring pace should slow to 175K/month in '17 More »
Interest rates 10-year T-notes at 2.4% by end '17 More »
Inflation 1.6% in '17, down from 2.1% in '16 More »
Business spending Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude trading from $40 to $45 per barrel in September More »
Housing 6% price growth by end of '17 More »
Retail sales Growing 3.5% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Inflation so far this year has been running below expected. The reasons for the lower inflation level are likely to persist for a while. The drop in crude oil prices has put off, perhaps indefinitely, any pickup in gasoline prices. A glut of cars coming off lease is driving down prices of used cars. Brand-name prescription drugs with expiring patent protection have kept overall drug price increases modest. And although costs of hospital services are rising unabated, costs of services by private physicians are actually down from the end of 2016.

Airline fares are declining after a drop in fuel costs. Apparel prices are in a downward trend, whereas auto insurance premiums are rising sharply.

See Also: All Our Economic Outlooks

Expect total inflation to be 1.6% in 2017, below 2016’s 2.1% rate. Core inflation, which excludes food and energy costs, should be 1.8% in 2017, down a bit from 2016’s 2.2%. Lower medical care price inflation, which should be about 1.8% in 2017--down from 3.8% in 2016--explains most of the slower growth. Housing costs are likely to rise 3.1% in 2017 because tight home inventory is pushing up sale prices and rents.

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Despite the better price news, the Federal Reserve will continue raising interest rates. The Fed hiked short-term rates a quarter-point at its meeting on June 14. The Fed knows that low energy and medical care inflation could reverse at any time, so an expected pickup in the economy’s growth rate and a tightening labor market will drive the Fed’s plan to raise interest rates back to a “normal” level.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data