PHILADELPHIA — Consumer price inflation is projected to rise sharply to 6% in the second quarter of 2026, nearly double the current headline Consumer Price Index rate of 3.8%, according to the latest Survey of Professional Forecasters released Friday by the Federal Reserve Bank of Philadelphia.
The new forecast represents a significant increase from the panel’s prior estimate of 2.7% issued three months earlier, before U.S. and Israeli military strikes on Iran contributed to higher energy prices and renewed inflation pressures, according to the Philadelphia Fed.
The report comes after April CPI data showed the fastest pace of consumer price growth in nearly three years, while the producer price index reached an annual rate of 6%, its highest level since December 2022.
Additional Revisions
The panel also revised upward its projections for personal consumption expenditures inflation, the Federal Reserve’s preferred inflation gauge.
According to the Federal Reserve Bank of Philadelphia:
- Headline PCE inflation is now projected at 4.5% for the second quarter
- Core PCE inflation is forecast at 3.4%
- Previous projections had both measures at 2.7%
For the full year, forecasters now expect:
- Headline CPI inflation of 3.5%
- Core CPI inflation of 2.9%
- Previous forecasts for both measures were 2.6%
Economists surveyed by the Philadelphia Fed expect inflation pressures to remain elevated into the third quarter before moderating later in the year. Fourth-quarter projections call for headline CPI inflation of 2.5% and core CPI inflation of 2.7%.
Long-Term Outlook Above 2%
The survey’s long-term outlook also remains above the Federal Reserve’s 2% target. The panel projected average annual inflation over the next 10 years at 2.4%, which the report said would equate to approximately 2.22% under the Fed’s PCE measure.
The inflation outlook comes as Kevin Warsh prepares to assume the role of Federal Reserve chair amid uncertainty over interest-rate policy. Although Warsh has expressed support for lower rates, Federal Reserve officials have continued signaling that rates could remain elevated or potentially rise further if inflation worsens.
Weakening Growth Projected
The Philadelphia Fed survey also showed a weakening outlook for economic growth.
Forecasters lowered their projections for gross domestic product growth to:
- 2.1% annualized growth in the second quarter
- 2.2% growth for full-year 2026
- 1.9% growth in 2027
The revised 2026 GDP forecast is 0.3 percentage points lower than the prior survey estimate.
Meanwhile, the unemployment rate is projected to average approximately 4.5% this year, according to the survey, up 0.2 percentage points from current levels.
