Economic Forecasts

Inflation Will Ease, But Only Gradually This Year

Kiplinger’s latest forecast on inflation

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Inflation eased a tad in April, edging down to an 8.3% rate over the past 12 months. A moderate decline in gasoline prices helped, though these have since rebounded so far in May. Food price increases remain strong. Chicken and egg prices have been surging because a renewed bout of avian flu in the U.S.is causing flocks to be culled. As consumers travel more this year, hotel rates and airfares have jumped from depressed levels during the pandemic. Airfares have also been affected by the rise in jet fuel prices. The shipping crunch is pushing up home delivery costs. A glimmer of good news is the gradual decline of used car prices from their peak back in February.

The inflation rate is expected to ease further over the rest of this year, but will likely end 2022 at a still-high rate of about 6.3%. In 2023 the rate should fall faster, down to 3.0% by the end of the year. The higher cost of housing will keep inflation rates elevated for some time to come. Gasoline prices and heating costs are likely to stay high for a good while because of the war in Ukraine, but they may plateau instead of climbing more. The price of cars and trucks will also stay at a high level until the semiconductor shortage ends sometime next year. Continued spot shortages of various items will drive their price up, adding to the overall inflation rate. The latest is a shortage of baby formula.

Continued inflationary pressures will likely spur the Federal Reserve to keep hiking short-term interest rates. Short rates will likely reach 2.5% by the end of the year. 10-year Treasury note rates have already risen to 3.0% in anticipation of the Fed’s hikes, but may edge up further.

Print-ready Consumer Price Index chart

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