Stubbornly Persistent High Inflation
Kiplinger’s latest forecast on inflation
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While gasoline prices dropped for the second month in August, other prices accelerated, leaving the inflation rate at a still very high 8.3%. Medical care price increases have picked up their pace this year, and their inflation rate would approach 10% if continued for a year. New car prices have already hit a 10% inflation rate.
It had been hoped that price increases would start slackening, but that has not been the case as of yet. Housing costs continue to rise at a strong pace, though rent increases tend to lag the broader housing market. Food prices slackened only a little. Restaurant prices maintain strong momentum. Used car prices have declined at auctions. It is hoped that this will carry over into their retail prices in the near future. But businesses are raising prices to try to stay ahead of cost increases for materials and labor. Shortages of medical personnel are likely to keep pressure on medical care costs. Expect price inflation at the end of the year to be around 8.0%, down a bit from the peak of 9.1% in June, but still high. Inflation will likely fall to around 3%-4% by the end of next year if the economy slows, as expected.
Falling gasoline prices by themselves will likely not be enough to dissuade the Federal Reserve from another 0.75-percentage-point increase in short-term interest rates at their policy meeting on Sept. 21. The Fed is looking to see easing price pressures across the board, not just in volatile components, before it decides to slow down its rate hikes. The Fed knows that still-strong wage increases are likely to keep upward pressure on prices in general.
