The worst of inflation is over, Congressional Budget Office says

The worst of inflation is over, Congressional Budget Office says
Storm clouds hang over Capitol Hill in Washington.J. Scott Applewhite/AP
  • New economic projections from the Congressional Budget Office signal the US is past peak inflation.
  • The agency expects inflation to slow to a 4% pace by the end of 2022 from March's 6.6% rate.

The nightmare of surging prices is starting to fade away, according to new projections from the Congressional Budget Office.

The nonpartisan agency updated its economic forecasts on Wednesday, laying out how it expects the US to grow over the next several years, and the outlook is encouraging. The office sees growth holding strong through 2022 despite growing fears of a recession. And after several months of the fastest inflation since the 1980s, price growth is expected to have hit its peak.

The PCE price index — one of the most closely watched measures of US inflation — is expected to climb 4% through 2022, according to the report. That's down from the 6.6% annual gain seen in the year through March and last year's 5.5% increase. It also represents a return to rates last seen in May 2021, signaling much of the inflation surge will reverse course by the end of the year.

Core PCE, which strips out volatile food and energy prices and is the Federal Reserve's inflation gauge of choice, will show a similar cooldown, CBO said. That measure of underlying inflation dynamics is projected to rise 3.8% this year following the 4.6% uptick through 2021. The cooldown will continue, with core inflation expected to hit 2.5% in 2023 and 2.2% the following year.

Projections for the Consumer Price Index, another popular inflation measure, are just as encouraging. If the CBO estimates ring true, then inflation will have peaked in spring 2022 and return to more sustainable levels by the end of next year.


As the CBO sees inflation cooling, it also expects the economic rebound to charge onward. Gross domestic product will grow 3.1% in 2022, the agency said, reflecting a rebound from the small contraction seen in the first quarter. Growth is then projected to ease to 2.2% in 2023 amid higher interest rates and dwindling support from government stimulus.

The unemployment rate, meanwhile, is expected to reach 3.7% by the end of the year, up slightly from current levels. The labor market is already on track to complete its rebound in the summer, and the CBO estimate suggests that progress will stick through the rest of the year.

To be sure, a bevy of uncertainties could render the office's forecasts moot. Much of the inflation problem is linked to the tangled global supply chain, and the latest coronavirus outbreak in China could keep worldwide trade from rebounding. Russia's invasion of Ukraine could further worsen shortages of crude oil, fertilizer, and wheat. And if Americans' inflation expectations climb to higher levels, it could be even harder for the Fed to rein in price growth.

Still, the updated projections suggest the US is nearing a pivot point in the economic recovery. After a year of suffocating inflation and fresh fears of an economic downturn, the CBO sees brighter days ahead.