The U.S. economy is expected to grow a healthy 4.6 percent this year, with inflation picking up as producers pass on the cost of rising commodity prices to consumers, a panel of top forecasters said on Monday.
The closely watched Blue Chip Economic Indicators newsletter said its latest poll of more than 50 professional forecasters found expectations for growth unchanged from a month ago -- though inflation expectations were ramped up.
"The results of this month's May 3rd and 4th survey dovetail with signs of optimism about the pace of growth but growing conviction that inflation will be higher than earlier thought," the newsletter said.
The survey found panelists expected the gross domestic product (GDP) price index to rise 1.7 percent this year, while the consumer price index was projected to rise 2.1 percent. Both forecasts were ramped up 0.2 percentage points from the month-ago prediction.
The forecast for growth in the CPI, the best-known measure of price pressures facing consumers, is up half a percentage point since February.
Prospects of rising inflation are expected to prompt interest rate hikes this summer from the Federal Reserve, which has held rates at 1958 lows of 1 percent since June.
The panel said the Fed will likely hike interest rates by "at least" 50 basis points by year-end.
GDP growth was forecast to cool to 3.8 percent in 2005.
The Blue Chip panel expects faster job and income growth to keep consumer spending relatively solid in coming quarters despite a sharp rise in energy prices, the waning boom in mortgage refinancing and ebbing effects of last year's tax cuts.
The newsletter said the panel expected personal consumption spending to rise 3.9 percent in 2004, the largest increase since the 4.7 percent advance in 2000, before the recession. Spending will cool to 3.3 percent in 2005, the panel forecast.
Housing starts were projected to dip only slightly to a 1.83 million unit rate this year, just below the red-hot pace of 2003, as mortgage rates begin to climb. The sector will cool further in 2005, with starts falling 8.2 percent to 1.68 million units, the panel said.
While the panel said the current modest pace of wage and salary growth, coupled with consumer inflation, threatens to dampen disposable income growth this year, it still projected a 3.8 percent increase in after-tax income. That would top the 2.6 percent gain last year and match the 2002 rise.
Real non-residential investment was projected to grow 9.9 percent this year, the best calendar-year rise in six years, and 8.8 percent in 2005.
"Helping fund faster growth in capital spending have been increased corporate profits," the newsletter said.
The panel forecast corporate profits would jump 18.7 percent this year and 10.7 percent in 2005, building on the stellar 18.3 percent growth last year.