Economic Forecasts

Inflation Moderates for Second Month; Used Car Prices Stop Rising

Kiplinger’s latest forecast on inflation

Inflation disappeared in October, as hospital, drug, health insurance, hotel, clothing and gasoline prices all declined. The drop in hospital charges was a surprise. It also helped that used-car prices have suddenly stopped their meteoric rise, and that shelter costs were also unchanged for the month. (But note that official inflation measures don’t include home prices, which are currently rising sharply.)

Expect used-car prices to begin a downward trend. The supply shortages that drove prices up strongly this year are beginning to ease.

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 2.1% annual rate, after coming in above 3% for each of the past five years. But shelter costs may rise a bit faster next year as rents pick up.

Airline fares posted their first large jump since the pandemic began, but remain 20% lower than a year ago. Car rental rates continue to post large gains, and are now almost 10% above last year’s levels. Telephone service plan rates are also rising at a 5% clip relative to last year.

Expect inflation to rise to 2.3% in 2021 as the pandemic recedes. Inflation will end 2020 at 1.1%, far below last year’s 2.3%, but as the pandemic ends, some prices that had been depressed will start to reassert themselves. Core inflation, which excludes the costs of food and energy, will run at about 2% in 2021, up from 1.7% at the end of 2020.

Print-ready Consumer Price Index chart

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.

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