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Economic Forecasts

Inflation Heads Higher at Moderate Pace

Kiplinger's latest forecast on inflation

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May prices rose a temperate 0.2%, consistent with higher inflation this year. Though 2.8% above last year’s costs now, by the end of the year the inflation rate should dip to 2.6%. The pickup, compared with 2017’s 2.1%, reflects higher overall prices, particularly for gasoline. Housing costs will rise 3.6% in 2018, more than last year’s 3.1%.

Costs for medical care will spike 2.5% this year, after 2017’s unusually low 1.6% rate. That translates into hospital prices jumping 4%-5%, but physicians charging just 1%-2% more for their services. Prices for nonhousing services will increase 2.7% this year, compared with 1.8% last year. Auto insurance rates are climbing substantially as fixing complex gadgets on newer vehicles gets more expensive and insurers adjust premiums accordingly. Delivery costs are also surging as competing businesses rush to guarantee free shipping by hiring more drivers and paying them more. Rising labor costs are pushing hotel rates up 4%-5%.

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Not all prices will go up significantly, or at all, this year. Food will cost only 1.4% more. Because of waning demand, new motor vehicles will be cheaper after accounting for quality improvements. A glut of off-lease vehicles hitting the market is denting prices for used cars and trucks, as is the decline of post-hurricane replacement demand.

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Cheaper vehicles will help keep inflation in check. But the Federal Reserve will stick with its plan of gradually hiking interest rates in response to inflation’s overall march up. (The Fed is expected to raise rates a quarter of a percentage point at least twice more this year, probably in September and December, and then three to four times next year.)

SEE ALSO: Print-Ready Consumer Price Index Chart

Source: Department of Labor, Inflation Data