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Economic Forecasts

Weaker Inflation Likely to Last Awhile

Kiplinger's latest forecast on inflation

GDP 2.1% pace in '17, 2.4% in '18 More »
Jobs Hiring pace should slow to 175K/month by end '17 More »
Interest rates 10-year T-notes at 2.4% by end '17 More »
Inflation 1.3% 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 5.5% 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 lower than expected. The reasons for the lower level are likely to persist for a while. The drop in crude oil prices has put off, perhaps indefinitely, any pickup in gasoline prices. High new-vehicle inventories will lead to higher manufacturer price incentives in the second half of this year. A glut of cars coming off lease is driving used car prices down. And although costs for hospital services are rising unabated, costs for private physicians’ services are actually down from the end of 2016.

Food costs will likely be capped by a developing price war caused by new entrants in both online and retail groceries. Airline fares are declining, following 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 1.3% in 2017, well below 2016’s 2.1% rate. Core inflation, which excludes food and energy costs, should be 1.7% this year, down 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 home prices, but rent growth appears to be slowing.

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Despite the better price news, the Federal Reserve will continue raising interest rates. The Fed is likely to reduce its purchases of Treasuries and mortgage-backed securities at its September meeting, and raise rates a quarter-point at its December meeting. There is a chance the Fed could delay its moves because of the current low inflation, but it is more likely that it will continue as planned, because the tightness of the labor market could point to future wage and price rises.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data