Five Factors That Will Drive Inflation Over 3% This Year

There are a variety of hypotheses of exactly how inflation will exert its influence across the broader economy over the coming year, but a rising consensus indicates that it’s a matter of ‘to what extent’, not ‘if’.

1. The unemployment rate is low, and will trend even lower.
2. America is swimming in high levels of wealth.
3. Oil prices will not collapse.
4. Rents and home prices will continue to move ahead at a good clip.
5. Despite overall consumer electronics prices having fallen, most consumers are buying the latest version with extra gadgets and often at a higher price.

Many other factors can move inflation one way or the other. For example, trade restrictions may mean higher prices for toys and shoes. Plenty of rain and good harvests can keep food prices manageable, while a drought can do the reverse.

Distribution efficiencies by online retailers like Amazon could hold prices down. A shortage of truck drivers could boost the cost of transportation. More people seeking work after having been out of the labor force will boost labor supply and hold wages from accelerating too fast.

Still, the five reasons stated above are too powerful to ignore, and hence inflation will be rising. An inflation rate of 3% by the end of the year is a distinct possibility.

ORIGINAL SOURCE: 5 Reasons For A Higher Inflation Forecast by Lawrence Yun at Forbes on 3/12/18