Survey: Economists say hot inflation is at risk of lingering until at least 2025

Inflation is nowhere near as hot as it was when shortages were ravaging global supply chains and consumers were flush with pandemic-era stimulus. Yet, price pressures are still higher than the Federal Reserve prefers — and they’re at risk of staying that way for at least another year.

Economists in Bankrate’s quarterly poll are divided on how soon inflation will hit the Fed’s ultimate goal of 2 percent. The largest share (35 percent) say inflation could reach that target by the end of 2024, but those odds were only slightly higher than the percentage of economists who expect 2 percent inflation by the end of 2025 (29 percent) or the end of 2026 (29 percent).

Americans who’ve struggled to afford everyday essentials — from electricity and gasoline to rent and car insurance — might think the Fed should aim for zero inflation. Yet, policymakers and economists consider 2 percent to be a level that’s “just right.” After all, the slower the inflation, the weaker the economy.

Key insights on the economy from Bankrate’s Q1 2024 Economic Indicator poll

Is the economy too strong for 2% inflation?

The share of economists who think that inflation could hit 2 percent by the end of 2024 has grown from 20 percent since last quarter. Rather, the bulk of economists (60 percent) in the prior-quarter poll expected 2025 would be the year the Fed could declare mission accomplished.

That’s despite early warning signs of slowing inflation losing momentum. Any way you slice the latest price pressures, inflation has been moving sideways. The Fed’s preferred gauge — the Department of Commerce’s personal consumption expenditures (PCE) index — has cooled from 7.1 percent in June 2022. Yet, prices between January and February heated up from 2.4 percent to 2.5 percent, the latest data shows.

Excluding food and energy, price increases haven’t been as bumpy — but they’re proving much more stubborn. Those so-called core prices have barely budged for two months, hitting 2.8 percent in February after holding at 2.9 percent since December.

“The Fed eased up on the brakes a little too early,” says Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida’s College of Business. “While the initial decline in inflation was rapid, recent progress has slowed to a crawl and more concerning is that inflation expectations have been rising. This is going to slow the rest of the journey to 2 percent inflation to a crawl.”

A separate measure of inflation from the Bureau of Labor Statistics’ consumer price index (CPI) shows even hotter price pressures, with inflation rising 3.2 percent from a year ago and 3.8 percent when excluding food and energy.

A major reason for those variations: the way each agency calculates shelter costs, currently one of the largest contributors to consumer inflation.

“Inflation will steadily move in the right direction this year,” says Dante DeAntonio, senior director of economic research at Moody’s Analytics. “It will be a bumpy road back to the Fed’s 2 percent inflation target, due mostly to the persistence of shelter inflation.”

Other major drivers of inflation are simply going to take time to cool. Services inflation, a corner of the economy closely tied to consumer spending, rose a faster 5 percent in February, BLS data shows. Meanwhile, items that change relatively slowly in price are driving most of the recent increases in inflation, an analysis from the Atlanta Fed shows.

Referred to as “sticky” prices, that category of goods and services is up 4.4 percent when excluding the volatile food and energy categories, data from February shows. That compares with a 0.2 percent drop in the inflation rate for items considered flexible because they adjusting more quickly.

As long as the resilient economy and labor market aren’t contributing to inflation, Fed Chair Jerome Powell has said officials wouldn’t be inclined to keep interest rates high. But economists in Bankrate’s poll are beginning to question just how much a more pronounced slowdown might be necessary to officially get the job done.

Risks of hotter-than-expected inflation — and higher-for-longer interest rates — underscore the importance of keeping enough cash on the sidelines in an emergency fund. Even better if that savings account pays a competitive interest rate.

Here’s what the nation’s top economists are saying about inflation

• The First-Quarter 2024 Bankrate Economic Indicator Survey of economists was conducted March 15-25. Survey requests were emailed to economists nationwide, and responses were submitted voluntarily online. Responding were: Mike Fratantoni, chief economist, Mortgage Bankers Association; Odeta Kushi, deputy chief economist, First American Financial Corporation; Nayantara Hensel, Ph.D., chief economist, Seaborne Defense; Gregory Daco, chief economist, EY; Scott Anderson, chief U.S. economist, BMO; Dante DeAntonio, senior director, Moody’s Analytics; Lawrence Yun, chief economist, National Association of Realtors; Bernard Markstein, president and chief economist, Markstein Advisors; Robert Frick, corporate economist, Navy Federal Credit Union; Bill Dunkelberg, chief economist, NFIB; Sean Snaith, director, Institute for Economic Forecasting, College of Business at the University of Central Florida; Mike Englund, chief economist, Action Economics; Tuan Nguyen, economist, RSM U.S.; Brian Coulton, chief economist, Fitch Ratings; Joel L. Naroff, president, Naroff Economics; John E. Silvia, founder, Dynamic Economic Strategy; and Bernard Baumohl, chief global economist, The Economic Outlook Group.