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Economic Forecasts

Good Inflation News Not Likely to Last

Kiplinger's latest forecast on inflation

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GDP 2.9% pace in ’18, up from 2.2% in ’17 More »
Jobs Unemployment rate will decline further More »
Interest rates 10-year T-notes at 3.2% by end ’18 More »
Inflation 2.5% in ’18, up from 2.1% in ’17 More »
Business spending Up 7% in ’18, boosted by expanded tax breaks More »
Energy Crude trading from $65 to $70 per barrel in December More »
Housing Price growth: 5.0% by end of ’18 More »
Retail sales Growing 5.1% in ’18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in ’18 More »

Inflation retreated again in September, to 2.3%, but by the end of the year, it should pick up slightly to 2.5%. A drop in prices of motor vehicles helped the September reading, along with a drop in energy prices. But gasoline prices have been rising so far in October, and tariffs should have some additional effect, bringing the inflation rate up a little in the next few months, and adding to the base inflation rate in 2019.

Prices excluding food and energy, called the core rate, stayed at 2.2% in September. The rate will likely edge up to 2.3% by year-end as tariffs boost the price of imports. Washing machine prices have surged 10.6% because of tariffs, for example, and prices of many consumer items could take a jump as tariffs levied on a wide range of Chinese goods work their way through the system. The Federal Reserve probably will not quicken its pace of interest rate increases in response to any upticks in inflation, because it knows that price gains caused by tariffs are not part of a broader inflationary trend. However, the Fed is still likely to continue hiking rates at quarterly intervals.

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At the end of the year, shelter costs will be growing at today’s 3.3% rate; food gains will hold at 1.4%; prices of all other commodities will decline slightly from a year ago; and growth in the cost of medical care services will pick up to 2.2%, from 2.0% now. Cost increases for physicians’ services and prescription drugs have been lower than expected for a while, and these are likely to pick up somewhat going forward. Other services will see a rise to 3.1% from September’s 2.9% rate.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data