Economic Forecasts

Inflation Should Ease Temporarily in April

Kiplinger’s latest forecast on inflation

Inflation should temporarily ease in April, now that gasoline prices have retreated from their March highs. Gas prices had risen 31% over the four months from December to March, acting as the main driver of higher inflation during that time. However, consumers who are flush with extra savings and looking to spend it will put upward pressure on many prices the rest of the year. This is what is driving the surge in used-car prices, for example.

Expect overall prices to rise 2.7% in 2021 as the pandemic recedes. Inflation ended 2020 at 1.4%, far below 2019’s 2.3%, but as the pandemic ends, some prices that had been depressed will start to reassert themselves, such as apartment rents, air fares, car rental rates, hotel rates and sports tickets. Core inflation, which excludes the costs of food and energy, will run at about 2.3% in 2021, up from 1.6% at the end of 2020. The Federal Reserve will recognize that this pickup in inflation is the result of temporary factors, and thus will not be tempted to raise short-term interest rates to tamp it down.

The price of groceries will rise only modestly, though some price levels may remain high. More consumers eating out will reduce demand for groceries. However, the prices of meat, corn, wheat and soybeans will likely continue at high levels for a while.

Medical costs are beginning to bounce back after being depressed last year. Costs should end the year up 4.2%, on average.

The cost of shelter is running lower than normal right now because rent increases have been slowed by the pandemic. Rent has been rising at only a 1.7% annual rate, after coming in above 3% for each of the past five years. House prices are rising strongly, but these are not included in the consumer price index calculation, and won’t start causing steeper rent increases until sometime later this year.

Print-ready Consumer Price Index chart

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