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Economic Forecasts

Inflation Will Rise This Year

Kiplinger's latest forecast on inflation

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GDP 2.9% pace in '18, up from 2.3% in '17 More »
Jobs Unemployment rate down to 3.8% by end '18 More »
Interest rates 10-year T-notes at 3.0% by end '18 More »
Inflation 2.5% in '18, up from 2.1% in '17 More »
Business spending Up 4% in '18, spurred by expanded tax breaks More »
Energy Crude trading from $55 to $60 per barrel in April More »
Housing Existing-home sales up 1.0%, new-home sales up 7.5% in '18 More »
Retail sales Growing 4.7% in '18 (excluding gas) More »
Trade deficit Widening 5%-6% in '18 More »

Inflation will be 2.5% in 2018, greater than 2017’s 2.1% pace, reflecting both higher gasoline prices and higher prices in general. A surge in crude oil prices guarantees that gasoline prices will provide the main boost to 2018’s inflation rate, but increased prices for other goods and services will contribute, too.

Nonenergy prices will grow 2.1%, compared with last year’s 1.7%. As the economy picks up, so does inflation. Housing will likely cost 3.5% more in 2018, compared with 2017’s 3.2%; medical care will go up 2.6% versus 1.6% in 2017; and all other services will cost 2.6% more, compared with 1.8%. Food prices will likely increase at a rate close to 2017’s 1.6%.

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December’s prices rose 0.1% as energy prices eased temporarily. Vehicles cost more as people continued replacing hurricane-damaged cars and trucks. Americans had to pay more for shelter as well, probably because low housing inventory boosted home prices and rents. Medical-care costs rose little as doctors’ offices are still having trouble maintaining fee increases. Apparel prices headed down again, and airfare continued easing.

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Higher inflation means that the Federal Reserve will keep boosting interest rates. The Fed is expected to impose three hikes in 2018. The central bank sees inflation running close enough to its 2% target to gradually bump up interest rates to a more typical range, after keeping rates extraordinarily low after the Great Recession.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data