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Economic Forecasts

Inflation Gets a Little Stronger

Kiplinger's latest forecast on inflation

GDP 2.1% growth in ’17, following 1.6% in ’16 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 Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude oil trading from $55 to $60 per barrel in May 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, after nearly flat '16 More »

Overall inflation should rise to an annual rate of 2.5% by the end of 2017, from 2.1% at the close of last year. A rebound in energy prices from 2016’s depressed levels will cause the majority of the pickup. Energy price increases in January have already accounted for much of the expected inflation bump in 2017.

Core inflation, which excludes food and energy, will end 2017 at a 2.4% annual rate, a little higher than 2016’s 2.2% rate. Services, including housing and medical care, will be the source of most of this rise. January saw a strong 1.4% gain in apparel prices as retailers sought to end holiday discounting, as well as increases in new-car prices. But it is not likely that these trends will continue.

See Also: All Our Economic Outlooks

The small pickup in the core inflation rate, spurred in part by wage increases, will likely prod the Federal Reserve to raise interest rates twice this year, by a quarter of a percentage point at a time.

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The strength of the U.S. dollar will help limit core inflation in 2017. Prices of most imported commodities will likely decline modestly. Prices of many domestically produced items will also be constrained, by greater competition from imports.

Overall prices of groceries will be nearly flat next year but the cost of dining out will rise. Expect beef, fruit and vegetable prices 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 prices will rise at least as quickly as the general inflation rate. Restaurant costs are determined more by workers’ wages than the cost of food. And 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. 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 and home prices.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data