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Economic Forecasts

Energy Prices Will Propel Inflation Pickup in 2017

Kiplinger's latest forecast on inflation

GDP 1.6% growth for the year; a 2.1% pace in '17 More »
Jobs Hiring pace should slow to 160K/month in '17 More »
Interest rates 10-year T-notes at 3% by end '17 More »
Inflation 2.4% in '17, up from 2.1% in '16 More »
Business spending Slight gain in '17 after flat '16 More »
Energy Crude oil trading from $50 to $55 per barrel in March More »
Housing Single-family starts up 9% in '16, 11% in '17 More »
Retail sales Growing 3.9% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, matching increase in '16 More »

Look for small increases in energy prices to boost overall inflation to 2.4% at the end of 2017, from 2.1% at the close of last year.

Core inflation, which excludes food and energy, will end 2017 at 2.3%, up just slightly from 2016’s 2.2% rate. The modest pickup in the core inflation rate, spurred in part by wage increases, will likely prod the Federal Reserve to raise interest rates twice next year, by a quarter of a percentage point at a time.

See Also: All Our Economic Outlooks

The strength of the U.S. dollar will help limit core inflation next year. Prices of most imported commodities will likely decline modestly. Prices of many domestically produced items will also be constrained by greater competition from imports.

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Overall prices of groceries will be nearly flat next year but the cost of dining out will rise. Expect egg, beef, and vegetable prices to continue to slip, but dairy and chicken prices to start rising after declines in 2016. Greater competition in the grocery business in 2017 along with lower prices for imported food will tamp down what you shell out at the supermarket, whereas restaurant meal prices will rise at least as quickly as the inflation rate. Restaurant costs are determined more by the cost of labor than the cost of food. And worker wages will rise faster in 2017 than they have recently, as the labor market in general tightens.

Health care costs are going to go up — again. Cost pressures will continue in this sector, particularly for hospitals. Health insurance costs will rise by 4% to 6% for employer plans, and up to 9% for the Obamacare exchange plans. Prescription drug price inflation will ease from 2016’s 6% rate.

The cost of keeping a roof over your head will rise by 3.6% in 2017, about the same as in 2016. Shortages of homes for sale in many metro areas will keep upward pressure on rents. But home price gains are expected to ease a bit, to 4% from a year ago, as rising mortgage rates keep a few would-be buyers on the sidelines.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data