Inflation rate projected to hit 6% in the second quarter, top economic forecasters say

The recent rise in inflation is expected to worsen over the next few months, according to a survey of the country’s leading economists released on Friday.

Consumer price inflation is expected to reach 6% in the first quarter, according to the Survey of Professional Forecasters, which is polled every quarter by the Federal Reserve Bank of Philadelphia.

In its last forecast three months ago, the panel put the expected consumer price index increase at just 2.7%. However, this was just before the US and Israel launched an attack on Iran; While the hostilities caused energy prices to rise, inflation data rose well above the Fed’s target of 2%.

The panel set the CPI rate for the full year at 3.5% for all items and 2.9% for core items; This rate excludes volatile food and energy prices. This was above estimates of 2.6% for both in the previous survey.

High inflation levels are expected to continue in the third quarter; Headline CPI is expected to be 3% and core inflation is expected to be 2.9%. Both levels are expected to ease by the end of the year, reaching 2.5% and 2.7% respectively in the fourth quarter.

Still, the board does not think the Fed will achieve its goal for the future. The 10-year projected annual average is 2.4%, which the survey notes would be equivalent to 2.22% based on the personal consumption expenditures price index, a measure of the Commerce Department that is the Fed’s preferred standard.

PCE inflation rates are also expected to remain well above the Fed’s comfort zone, though not as high as the consumer price index compiled by the Bureau of Labor Statistics.

Headline PCE inflation is projected to be 4.5% for the second quarter, with core inflation projected to be 3.4%, compared to previous forecasts of 2.7%.

The survey follows a spate of inflation data showing prices paid at both the consumer and wholesale level reached multi-year highs in April. The headline CPI showed inflation at 3.8%, the highest level in nearly three years, while the annual inflation rate of producer prices at 6% was the highest since December 2022.

All the data comes as Kevin Warsh prepares to assume the role of Fed chairman. Although Warsh has stated that he would like to see lower interest rates, that will be difficult to achieve given inflation figures are so high and the general sensitivity of fellow policymakers to keep rates steady with an open mind to possible rate hikes if inflation worsens.

Elsewhere in the survey, forecasters downgraded their growth outlook in coming quarters. They expect gross domestic product to rise 2.1% annually in the second quarter and 2.2% for the full year; This rate decreases by 0.3 points compared to the previous estimate. Growth is expected to slow to 1.9% in 2027 and rise again to above 2% in subsequent years.

This year the unemployment rate is expected to be around 4.5%, or 0.2 percentage points higher than the current level.