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Economic Forecasts

Recent Weak Inflation Not Likely to Deter Fed

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 2.7% by end '17 More »
Inflation 2.1% in '17, same as in '16 More »
Business spending Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude trading from $47.50 to $52.50 per barrel in August More »
Housing 6% price growth by end of '17 More »
Retail sales Growing 3.8% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Inflation so far this year has been running lower than expected. The drop in crude oil prices is limiting an anticipated surge in gasoline prices. A glut of cars coming off lease is driving used-car prices down. Brand-name prescription drugs with expiring patent protection have kept overall drug price increases modest. And although the costs of hospital services are rising unabated, private physicians’ service costs are actually down from the end of 2016.

Expect total inflation to be 2.1% in 2017, the same as in 2016. Core inflation, which excludes food and energy costs, should be 2.0% this year, down a bit from 2016’s 2.2% rate. Reduced medical-care price inflation — which should be about 2.1% in 2017, down from 3.8% in 2016 — explains most of the slower growth. Housing costs are likely to rise 3.3% in 2017, because tight home inventory is pushing up purchase prices and rents.

See Also: All Our Economic Outlooks

Despite the better price news, the Federal Reserve will continue raising interest rates. The Fed is expected to hike rates at its next 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 hike interest rates back to a “normal” level.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data