Inflation Rate Forecast

Economic Forecasts

Inflation to Slow to 0.3% by end 2020

Kiplinger’s latest forecast on inflation

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Falling prices in March and April are likely to drag the inflation rate down to 0.3% by the end of the year, far below last year’s 2.3%. The meltdown in oil prices will likely cause energy prices to end the year down 16%. A coronavirus-induced slowdown in the U.S. economy has resulted in some significant price declines elsewhere as well: Airline fares are down 24% from a year ago; hotel and motel rates 16%; car and truck rental charges 15%. New-car prices are likely to trend down a bit because of lower demand. There should be good deals on out-of-favor models. Sporting goods and apparel prices have been soft, as inventory piles up. Prices have dropped especially on outerwear and business attire. Car insurance companies are offering rebates to policyholders, which lowers the price index. Even after lockdowns are lifted, spending at restaurants will likely be hurt by both virus concerns and lower consumer willingness to splurge on something that is not a necessity, so menu prices will not rise.

There could be a few important exceptions: Housing prices may jump in the second half of the year as low mortgage rates cause demand for homes to surge in the face of low inventory. Also, food prices will rise 5%, a bit more than usual. Besides a renewed preference for eating at home instead of eating out, a number of meat processing plants have had to shut down because of outbreaks among their workers, causing shortages. Meat prices rose 3.3% and chicken 5.8% in April. High demand for eggs drove their prices up 16.1%.

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Core inflation, which excludes the costs of food and energy, will continue to run higher than the headline rate, at about 1.1% over the course of this year. Health insurance costs and hospital charges are the main reason behind the current lofty 5.8% medical services inflation rate, though the cost to employers of providing health benefits typically runs lower due to cost-saving measures. Employer costs are likely to be up 3.6% this year, to an average per-employee cost of about $12,000 for small employers and $14,000 for large employers. Small employers have been offering plans with deductibles that have risen faster than those at large employers.

By year-end, shelter costs will have risen 3.2%, about the same as in 2019. The prices of all other commodities will decline 1.9% as demand remains soft. Demand for personal services will remain weak this year because of lingering virus concerns, and on average, their prices will end the year 1% lower.

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A note about data reliability: An issue that government data collectors face is that at the moment, they cannot go into stores that are shut down and collect price data. Therefore, the reliability of some of the numbers may be suspect, though the Bureau of Labor Statistics managed to obtain three-fourths of their normal price quotes online and through other means. The BLS also has statistical procedures in place to keep missing data from biasing the overall numbers.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data