Inflation Headed Higher in ’18

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Kiplinger's latest forecast on inflation


GDP 3.0% pace in '18, up from 2.3% in '17 More »
Jobs Slower job gains likely this year as labor market tightens More »
Interest rates 10-year T-notes at 3.3% by end '18 More »
Inflation 2.6% in '18, up from 2.1% in '17 More »
Business spending Up 7% in '18, boosted by expanded tax breaks More »
Energy Crude trading from $60 to $65 per barrel in June More »
Housing Price growth: 5.0% by end of '18 More »
Retail sales Growing 4.2% in '18 (excluding gas and autos) More »
Trade deficit Widening 5%-6% in '18 More »

March’s prices edged down 0.1% on a big drop in gasoline prices, but this will be reversed in April. Inflation is still headed up this year, to a 2.6% rate (compared with 2017’s 2.1%), reflecting more expensive gasoline and overall higher costs. Gasoline outlays are headed up because of lower inventories of crude oil as demand perks up. The dollar’s lower value will also keep prices of other goods and commodities climbing this year, as many are imported.

Medical-care price inflation will hit 2.8% this year after 1.6% in 2017, which was unusually low. Prices of non-housing services will increase 3.1%, compared with 1.8% last year. New-car leases have become more expensive as car companies adjust to lower-than-expected end-of-lease values. And auto insurance rates are climbing substantially as the industry responds to higher costs for repairing expensive features on newer vehicles.

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Not everything will see rising inflation this year. Food prices will continue to bump along at a 1.4% rate. Shelter costs will rise 3.2%, about the same as last year. Apparel prices are retreating from their post-Christmas price surge. Prices of new motor vehicles will be flat, after accounting for quality improvements. Prices of used cars and trucks are softening again, indicating that post-hurricane replacement demand has abated.

The higher inflation rate this year means that the Federal Reserve can stick with its plan of gradual interest rate hikes. The Fed is expected to raise rates a quarter of a percentage point in June and December, and then three to four times next year.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data