Drop in Prices Not Likely to Delay Fed Rate Hike

The Federal Reserve is likely to regard the drop in prices reported in March as temporary. Gasoline prices are already rebounding, and the large drop in apparel prices is not likely to be repeated. Therefore, this one-month downturn shouldn’t affect the Fed’s plans for future interest rate hikes.

Overall inflation should rise to an annual rate of 2.3% by the end of 2017, from 2.1% at the close of last year. A rebound in energy prices from 2016’s depressed levels will cause the majority of the pickup. The recent dip in gasoline prices will likely be followed by more increases later in the year.

Core inflation, which excludes food and energy, will also end 2017 at a 2.3% annual rate, slightly higher than 2016’s 2.2% rate. Housing and medical care will account for most of this rise. Other goods and services are also starting to show modestly faster price increases. Balancing this out will be a decline in the prices of used cars as more autos that were leased a few years ago end up on dealers’ lots.

Overall prices of groceries will be nearly flat this year, but the cost of dining out will rise. Expect beef, fruit and vegetable prices to slip, but dairy and chicken prices to start rising after declines in 2016. Greater competition in the grocery business this year plus lower prices for imported food will tamp down what you shell out at the supermarket, whereas restaurant meal prices will rise at least as quickly as the general inflation rate. Restaurant costs are determined more by workers’ wages than the cost of food. And wages will rise faster in 2017 than they have recently, as the labor market in general tightens.

Health care inflation will ease. Prices of medical services should rise by 2.8% in 2017, down a bit from the 3.9% increase in 2016. Prices at physician practices will rise more slowly than at hospitals this year. Still, health insurance costs should rise by 4% to 6% for employer plans, and up to 9% for the Obamacare exchange plans. Prescription-drug price inflation will ease from 2016’s 6% rate, but will stay at an elevated level.

The cost of keeping a roof over your head will rise by 3.3% this year.Shortages of homes for sale in many metro areas will keep upward pressure on rents and home prices.

Photo: Federal Reserve By Dan Smith CC-BY-SA-2.5, via Wikimedia Commons

Free "dummies guide" to trading options

Did you know trading options can actually be safer and more profitable than buying and selling stocks? Video and plain English training guide reveals how to get started tonight. 100% free.

Download now.

You May Also Like

About the Author: TTR Admin

  • JohnDille

    While millions of individuals dutifully pay their taxes every April, big banks and Wall Street billionaires continue to find ways to avoid paying their fair share.

    From 2008 to 2015, the nine biggest banks avoided paying $80 billion in taxes through various loopholes and exemptions – and that’s just the tip of the iceberg. Unbelievably, a small group of billionaire bankers and hedge fund managers pay lower tax rates than low-income working people. Under President Trump’s tax plan, these tax loopholes for Wall Street will broaden even more.

    It’s time to fix this rigged system, not make it worse. Tell Congress to end giveaways to Wall Street and make banks and billionaires pay their fair share in taxes.

    Since the election, we’ve fought back against Trump’s efforts to let Wall Street run our government and our economy. Now we need to amp up pressure on Congress to halt Trump’s gigantic giveaway to the same banks that have a history of abusive lending practices targeting communities of color and low-income working people.

    Under Trump’s tax plan, the six biggest U.S. banks (including Goldman Sachs) would receive a $250 billion break on the taxes they owe on offshore profits. And hedge fund managers and Wall Street CEOs would see a huge cut in their individual tax rates – totaling a $1.5 trillion tax giveaway mostly for Wall Street billionaires and the richest one percent.

    Instead, we need to close existing loopholes and tax Wall Street’s most reckless and risky behavior. The big banks shouldn’t be handed even more power to manipulate the system. We pay our fair share in taxes. So should Wall Street billionaires.

  • JohnDille

    YEAH… RIGHT WINGERS KEEP THEIR MONEY IN OFFSHORE BANKING ACCOUNTS AND IN THE STOCKS OF COMPANIES THAT SELL DOPE AND DRUGS AND GUNS AND WEAPONS. RIGHT WINGERS OWN THE WORLDS BANKS, AND MAKE VAST FORTUNES WHEN US ORDINARY FOLKS PAY INTEREST ON EVERYTHING WE BUY… AND WHEN THE COMPANIES WE WORK FOR PAY INTEREST ON WHATEVER THEY BORROW, AND WHEN OUR GOVERNMENTS PAY INTEREST ON THE MONIES THEY HAVE TO BORROW… BECAUSE THE RIGHTWING FRIENDLY POLITICIANS HAVE CUT THE TAXES OF RICH RIGHT WING FASCISTS! GEE… STRANGE HOW THE SYSTEM WORKS TOTALLY IN FAVOR OF RICH RIGHT WINGERS, ISN’T IT!!! NO WONDER LIBERALS WANT PEOPLE LIKE BERNIE SANDERS AND ELIZABETH WARREN AND ROBERT REICH IN POWER, SO REAL DEMOCRATS CAN DESTROY OR DRAMATICALLY WEAKEN THE ALMOST TOTALLY RIGHT WING SYSTEM THAT ROBS MOST OF US BLIND…ALL FOR THE BENEFIT OF RICH RIGHT WINGERS! BUT PUPPETS OF THOSE RICH RIGHT WINGERS… MORONS LIKE YOU… JUST CAN’T UNDERSTAND THAT! WE HAVE TO WONDER IF GUYS LIKE YOU WERE BORN STUPID… OR IF THE RICH RIGHT WINGERS HAVE TOTALLY BRAINWASHED YOU TO BE COMPLIANT PUPPETS AND USEFUL IDIOTS!!! IN YOUR CASE… PROBABLY BOTH MECHANISMS APPLY!!!

  • Girls_club

    RICH RIGHT WINGERS do NOT have their money in the banks. LMAO

  • JohnDille

    KEEP INTEREST RATES AS LOW AS POSSIBLE, FOR AS LONG AS POSSIBLE, AND TICK OF ALL THE RICH RIGHT WINGERS WHO MAKE THEIR FORTUNES ON THE BACK OF ALL THE REST OF US…. A VERY SIZABLE PORTION OF IT FROM INTEREST INCOME. RAISING AVERAGE INTEREST RATES JUST 1% PER YEAR WOULD PUT AN EXTRA HALF TRILLION DOLLARS A YEAR INTO THE POCKETS OF THE RICH… TAKEN FROM THE POCKETS OF ALL THE REST OF US!!! STUPID REPUBLICAN PUPPETS MAY SUPPORT THAT, BUT NO REAL AMERICAN WOULD! BESIDES… THE FED DOES NOT RAISE… OR LOWER… INTEREST RATES ALL THAT MUCH… THE MARKETS DO THAT, AND THE FED MOSTLY JUST GOES ALONG WITH THE MARKETS! THAT MAY COME AS A SHOCK TO ECONOMICALLY ILLITERATE REPUBLICANS… BUT MOSTLY… THAT IS A FACT! THE FED ONLY MOVES INTEREST RATES… ON ITS OWN… WHEN IT SEES RATES AS GETTING TOO HIGH OR TOO LOW BECAUSE OF MARKET FORCES THAT HAVE SPIRALLED OUT OF CONTROL… WHICH… GIVEN HOW STUPID THE RICH REPUBLICANS WHO DRIVE THE MARKETS ARE… IS QUITE OFTEN!!!