Inflation Rate Forecast

Economic Forecasts

Inflation Relents

Kiplinger’s latest forecast on inflation

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GDP 2.6% growth in '19 More »
Jobs Job gains of about 175,000 per month in '19 More »
Interest rates 10-year T-notes at 2.8% by end ’19 More »
Inflation 2.0% in ’19, up from 1.9% in ’18 More »
Business spending Up 5% in ’19 as global growth slows More »
Energy Crude trading from $60 to $65 per barrel in August More »
Housing 5.35 million existing-home sales in ’19, up 0.2% More »
Retail sales Growing 4.3% in ’19 (excluding gas and autos) More »
Trade deficit Widening 7%-8% in ’19 More »

Inflation was modest in June, as prices of energy, groceries and prescription drugs all declined. Overall costs have increased 1.6% from 12 months ago, and 2.1% for the core rate, which is everything except food and energy. Energy price declines are likely finished for now. By the end of the year, the overall inflation rate should bump up to 2%.

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By year’s end, shelter costs will have risen 3.6%, up from 3.2% in 2018. Food prices will have increased 2.2%—their fastest pace in four years— but could slide again if trade tensions with China are not resolved. The prices of all other commodities will be unchanged, on average. Medical care services’ costs will jump 3.1%, a little higher than they did last year. Physicians’ services and prescription drug price inflation have been lower than expected. Despite this good news, the cost of health insurance is climbing at a rate of 14%. Other services will be 1.4% more expensive in 2019, down from 2018’s 2.4% increase.

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Higher tariffs will add only 0.1 percentage point to the inflation rate—and that’s only if they remain in effect for long. The Trump administration has backed off its threat to levy $325 billion worth of imports from China at 25%. Because most of this latter group would have been consumer goods, that would have had a larger effect, hiking inflation by an additional 0.4 percentage point. However, it would have taken some time for price increases to work their way through the system.

The Federal Reserve is more likely to cut rates soon because of reduced inflation. It will be able to boost the economy without having to worry about creating higher inflation. If tariffs do add to the inflation rate, the central bank is likely to look past that, seeing this as a temporary effect.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data