Inflation Rate Forecast

Economic Forecasts

Core Inflation Picks Up

Kiplinger’s latest forecast on inflation

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Core inflation, which excludes the cost of food and energy, showed strength for the second month. Increases in medical-care services contributed to the pickup, along with goods prices, because of higher tariffs on imports from China that took effect in recent months. Overall inflation, which includes food and energy, is running at 1.8%, versus 2.2% for the core rate. But by the end of the year, look for the overall inflation rate to hit 2.3% and for the core rate to reach 2.5%.

By year’s end, shelter costs will have risen 3.6%, up from 3.2% in 2018. Food prices will be 1.4% higher, though recent increases have been minimal because China has stopped buying agricultural products from the United States. The prices of all other commodities will be 1.2% higher, on average — a pickup from 2018’s 0.3% gain because of tariffs.

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The costs of medical-care services will jump 3.6%, faster than their 2.7% rise last year. Physicians’ services and prescription drug price inflation have been lower than expected. Yet the cost of health insurance is climbing at a rate of 16%. Other services will be 1.5% more expensive in 2019, down from 2018’s 2.4% increase.

The Federal Reserve will ignore the stronger inflation and will cut interest rates this fall. The Fed knows that tariffs cause only one-time price step-ups, which won’t count toward future inflation, so it doesn’t feel it needs to raise rates in order to tame long-term inflation.

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Source: Department of Labor, Inflation Data