U.S. inflation has picked up again in 2026, with September's latest reading coming in slightly above expectations. The latest forecasts nevertheless point to a renewed decline in price pressures over the next few years, with personal consumption expenditures (PCE) inflation expected to fall to 2.5% in 2027 and average 2.0% from 2028 through 2030. If that path holds, easing inflation could give the Federal Reserve room to resume cutting interest rates in 2027 and 2028. The Fed previously raised rates on September 16.
The pandemic shock pushed U.S. PCE inflation to a peak of 6.5% in 2022. Inflation fell to 2.6% in 2024, but the decline then stalled as tariffs began to feed through to prices. Tariffs are estimated to have added about 0.3 percentage points to inflation in 2025, while higher energy prices became one of the main reasons price pressures resurfaced in 2026.
Tariff effects may fade as price increases work through
Tariff increases in 2025 lifted goods prices, and the related costs are still being passed through to consumers this year. Core goods inflation, excluding food and energy, was 0.8% in 2025 and is running at about 1.9% in 2026. That is well above the roughly zero average recorded from 2005 to 2019.
Changes to the way software inflation is measured have also contributed to higher durable-goods inflation. Even so, tariffs remain the main explanation for the portion of current inflation that is above historical norms.
After the U.S. Supreme Court rejected some tariff measures in February 2026, the average tariff rate remained broadly stable. Markets have also seen no clear signal of a large new round of tariffs. As the price impact of the tariff increases imposed in 2025 is fully absorbed, inflation in durable goods and core nondurable goods could gradually move closer to past normal levels.
Lower oil prices could ease headline inflation
A ceasefire reached between the United States and Iran in June did not fully reopen the Strait of Hormuz, sending oil prices higher again. As of October 19, West Texas Intermediate crude was trading at $104 a barrel, up 80% for the year.
Futures markets, however, expect oil prices to fall significantly over the next year and beyond. The October 2027 contract was priced at about $83 a barrel, while the October 2028 contract was around $74. If those expectations are realized, gasoline prices could decline substantially over the next two years, putting meaningful downward pressure on overall inflation.
Futures prices do not always accurately predict how long a conflict will last. In March, near-term oil prices briefly topped $100 a barrel, while the November 2026 contract was below $80, indicating that markets expected the conflict to end quickly. That contract is now above $100.
Even so, the current supply disruption is generally viewed as temporary. If the strait reopens, damaged infrastructure is repaired and crude shipments resume, oil prices could gradually move back toward their pre-conflict levels.
Wage growth is nearing a low-inflation pace
The labor market is no longer providing a clear source of inflationary pressure. In the second quarter of 2026, overall wage growth was 3.7% year over year, down sharply from a peak of 6.2% in the first quarter of 2022.
The inflation contribution from wages can be estimated by subtracting labor-productivity growth from nominal wage growth, assuming labor's share of gross domestic product remains stable. Using the past six years' average productivity growth of 1.9%, current wage growth implies an inflation rate of roughly 1.8%—close to, and slightly below, the 2% inflation target.
Easing wage pressure is likely to affect a range of service industries, particularly core services outside housing, including health care and restaurants.
Housing costs still have room to cool
The housing components of the CPI and PCE indexes mainly capture the average rent actually paid by all tenants, which means they lag changes in market rents by a significant margin. After market rents rose sharply in 2021 and 2022, official housing inflation was still as high as 5.40% in 2024. It fell to an average of 3.90% in 2025 and is expected to decline to 3.2% in 2026 and 3.0% in 2027.
Market rent growth has already slowed considerably as housing demand weakens and supply increases. A composite measure showed year-over-year market rent growth of just 1% as of July 2026. As that slowdown gradually feeds into official price indexes, housing costs could remain an important source of downward pressure on U.S. inflation.
The forecast remains sensitive to developments in energy markets, tariff policy and the conflict. Those factors will determine whether the expected decline in inflation through 2027 stays on track.