Inflation Rate Forecast

Economic Forecasts

Health Insurance Drives Core Inflation Pickup

Kiplinger’s latest forecast on inflation

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Core inflation, which excludes the cost of food and energy, showed strength for the third month. Large increases in health insurance costs contributed the most to the pickup, followed by goods prices, due to higher tariffs on imports from China that took effect in recent months. Overall inflation, which includes food and energy, is running at 1.7%, versus 2.4% for the core rate. But by the end of the year, look for the overall rate to hit 2.3% and the core rate to reach 2.6%.

By year’s end, shelter costs will have risen 3.4%, 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, causing ag commodity prices to weaken. The prices of all other commodities will be 1.4% higher, on average — a pickup from 2018’s 0.3% gain because of tariffs. The costs of medical care services will jump 4.6%, faster than their 2.7% rise last year. A pickup in health insurance costs is almost entirely responsible, as these surged by 18.6%, from 5.4% last year. Increases for physicians’ services and prescription drugs have been modest. Other services will be 1.8% more expensive in 2019 — smaller than 2018’s 2.4% increase.

See Also: All Our Economic Outlooks

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 that won’t count toward future inflation, so it doesn’t feel it needs to raise rates in order to tame long-term inflation.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data