Congressional Budget Office says inflation to last into 2023

— The Congressional Budget Office released an economic outlook Wednesday, saying that high inflation will persist into next year, likely causing the federal government to pay higher interest rates on its debt.

The nonpartisan agency expects that the consumer price index will rise 6.1% this year and 3.1% in 2023. This forecast suggests that inflation will slow from current annual levels of 8.3%, yet it still would be dramatically above a long-term baseline of 2.3%.

The 10-year estimates do contain positive news as this year’s annual budget deficit will be $118 billion lower than forecast last year. That’s a byproduct of the end of pandemic-related spending and the solid job growth it helped to spur. As a share of the total economy, publicly held debt will drop through 2023. Still, the accumulated federal debt likely will continue to grow over the next decade to be equal to roughly 110% of U.S. gross domestic product.

The Federal Reserve has been trying to reduce inflation by raising its benchmark interest rates, causing the interest charged on 10-year U.S. Treasury notes to increase substantially in recent months. One consequence is that the government will be spending more money this year to service its debt. By 2032, the yearly interest payments will be nearly $1.2 trillion, or more than what the federal government spends on defense.

Still, the CBO cautions that its numbers “are subject to considerable uncertainty, in part because of the ongoing pandemic and other world events,” including Russia’s ongoing war in Ukraine. The report accounts at least for the first few months of the war, according to CBO.

Economists have said coronavirus relief programs issued by both the Biden and Trump administrations have contributed to higher inflation levels. But high prices also have been fueled by a delay in action by the Fed, supply chain disruptions and the tumult produced after Russia invaded Ukraine in February.