Will Inflation Continue to Decline in 2025? | Global News Avenue

Inflation has cooled sharply from post-pandemic highs but remains stubbornly stubborn. Economists expect the sticky inflation trend to continue this year.

Inflation has slowed sharply since peaking at an annual rate of 7.25% in June 2022, according to the Fed’s preferred measure. However, progress has slowed this year and inflation remains above the Fed’s 2% annual target. Inflation rose for the second consecutive month in the 12 months to November.

The Federal Reserve’s recent lowered expectations A rate cut is expected in 2025 due to persistent inflationary pressures.

Inflation is likely to remain around current levels

Wells Fargo economists expect inflation to be between 2.5% and 2.6% next year. That’s up from the 2.4% reading in the 12 months to November and further from the Fed’s target.

Fed officials agree. In their most recent forecasts, the median estimate for inflation in 2025 is 2.5%.

Investors are also bracing for higher prices, with BMO chief economist Scott Anderson writing that the bond market is already pricing in inflation of around 2.4% over the next five years.

What factors continue to push up inflation?

Economists typically focus on three main components of inflation: goods, services and housing.

commodity

For consumers, physical goods prices will mostly remain stable or fall in 2024, while services and housing costs will remain higher.

However, progress on commodities is likely to stall, with inflation expected to be only slightly better at the end of 2025 than at the end of this year, said Sarah House, senior economist at Wells Fargo.

One of the reasons is New tariff proposal President-elect Donald Trump could push prices higher.

“It looks like there will be less goods deflation next year,” House said. “When you factor in the tariff outlook, we do think inflation is likely to pick up at least slightly in the second half (of 2025).”

Serve

Economists predict that consumers may still face rising prices in the service sector in the new year. However, Matthew Shea, president and CEO of the National Retail Foundation, said they may have adjusted their spending habits accordingly.

“They’ve definitely adjusted their behavior this year to reallocate their monthly disposable income because there’s some stubborn inflation in the services sector,” Shea said.

housing

Economists have Long-term expected housing inflation fall. Government data measuring housing inflation lags other indicators. Economists including Federal Reserve Chairman Jerome Powell expect the government data to be more in line with rents currently being offered.

“Housing services inflation – which is a real concern of ours – has indeed declined quite steadily now, at a slower pace than we thought two years ago,” Powell said at a news conference after the Fed’s December policy meeting. “. “The process is ongoing.”