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(Bloomberg) — Economists raised their estimates for US inflation and said they expect only one Federal Reserve interest-rate cut this year amid elevated energy costs sparked by the Iran war.
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The personal consumption expenditures price index is now seen rising 3.6% in the second quarter from a year earlier, according to Bloomberg’s April survey of economists. That compares with the 3.3% estimate in the March survey.
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Forecasters also expect another metric that strips out food and energy costs to advance more than previously estimated, with both gauges remaining at or above 3% through the end of the year. They pushed out their forecasts for Fed rate cuts to October 2026 and March 2027.
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President Donald Trump has said a ceasefire that was set to expire would stay in place indefinitely while waiting for Iran to submit a unified peace proposal, but the Strait of Hormuz has remained essentially closed to shipping of oil and other goods with the US and Iran locked in a battle for control.
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Analysts warn energy prices will remain elevated even if there is a resolution to the hostilities soon because of the damage to energy production facilities and refining capacity incurred during the war.
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“The legacy effects of the war in Iran are going take months — not weeks — to unwind, with echo effects well into the second half of the year,” said Diane Swonk, chief economist at KPMG.
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US households are dealing with gasoline prices that have been hovering around $4 a gallon on average, and elevated diesel prices and supply disruptions have driven up input costs for US businesses.
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The survey showed consumer spending rising 1.9% this year, down slightly from the previous estimate. Gross domestic product is now expected to rise 2.2%, also slightly lower than previously forecast. The chance of a recession in the next 12 months was unchanged at 30%.
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The Bloomberg survey of 90 economists was conducted April 17-22.
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