Inflation Rate Forecast

Economic Forecasts

Inflation to Ease to 2.1% by end 2020

Kiplinger’s latest forecast on inflation

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Although January’s consumer price index report showed inflation rising to 2.5%, the rate is likely to ease to 2.1% by the end of 2020. The coronavirus-induced slowdown in China’s economy is already causing agricultural and metals prices to fall. Also, expectations are that modestly slower economic growth in both the U.S. and globally in 2020 will prevent inflation pressures from accelerating. Energy prices are expected to continue to be soft for a while.

Core inflation, which excludes the costs of food and energy, will continue to run higher than the headline rate, at about 2.3%. Health insurance costs are the main reason behind the lofty 5.1% medical services inflation rate, though the cost to employers of providing health benefits typically runs lower because of cost-saving measures. Employer costs are likely to be up 3.6% this year, to an average per-employee cost of about $12,000 for small employers and $14,000 for large employers. Small employers have been offering plans with deductibles that have risen faster than those at large employers.

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By year’s end, shelter costs will have risen 3.1%, a tad below the 3.3% increase in 2019. Food prices will be 1.7% higher, the same as in 2019. They had been expected to strengthen in anticipation of China buying more U.S. agricultural goods, but the coronavirus has slowed down all trade with China. The prices of all other commodities will be down 0.1%, after 2019’s slight increase. Other services will be 2.4% more expensive in 2020, up a bit from 2019’s 1.8% increase.

With inflation close to 2% and stable, the Federal Reserve is not likely to change interest rates again for a while. Easing wage growth should also keep a lid on upward price pressures.

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data