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4 Reasons to Think US Inflation Will Come Back Down
Morningstar • • business
Key Points:
- US inflation peaked at 6.5% in 2022 due to pandemic shocks, dropped to 2.6% by 2024, but rose again in 2025 and 2026 due to tariff hikes and the Iran war, with a forecasted decline to 2.4% in 2027 and 2.0% average from 2028-2030.
- The inflationary impact of 2025 tariff hikes is expected to fade as no new large tariff increases are anticipated, allowing core goods inflation to return closer to historical norms.
- Despite a recent spike in oil prices due to renewed conflict in the Strait of Hormuz, futures markets predict a significant price drop by late 2027, which should reduce energy-driven inflation next year.
- Wage growth has slowed to 3.5% year-over-year in Q2 2026, consistent with low inflation around 1.6%, indicating the labor market is no longer pushing inflation upward.
- Housing inflation, which lags market rent changes, is projected to continue declining from 3.9% in 2025 to around 3.0% by 2027, reflecting weakening housing demand and increased supply.
