If you've been waiting for inflation to return to pre-pandemic normal, 2026 isn't going to deliver that relief. The Federal Reserve, major banks, and independent forecasters all project that consumer prices will remain stubbornly above the Fed's 2% target throughout the year—a persistent "low-grade fever" that affects everything from grocery bills to housing costs.

The Forecasts: Stuck Above Target

The Federal Reserve's December forecast projects inflation cooling to about 2.4% in 2026. While that's better than the 6-9% peaks of 2022, it would still leave inflation above the central bank's target—signaling that higher prices will continue to weigh on family finances.

J.P. Morgan Asset Management offers a more detailed trajectory. They expect year-over-year CPI inflation to drift down to 2.8% by the fourth quarter of 2026, with the Fed's preferred measure (PCE inflation) settling around 2.4%.

Bank of America's economists calculate that inflation will actually tick up slightly in the first quarter of 2026 before stabilizing, then gradually retreating later in the year.

What's Driving Persistent Inflation?

J.P. Morgan describes the outlook as "a low-grade fever, triggered by tariff impacts but mitigated by low energy prices, declines in shelter inflation and global economic sluggishness." Several factors will keep prices elevated:

Tariff effects: The Trump administration's trade policies continue to work through supply chains, adding costs to imported goods that get passed to consumers.

Labor constraints: Despite a cooling job market, certain sectors still face worker shortages that push up wages and, consequently, prices.

Fiscal stimulus: Government spending remains elevated, injecting demand into the economy even as the Fed tries to cool things down.

Dollar weakness: A declining dollar makes imports more expensive, adding inflationary pressure across consumer goods.

The Food Price Reality

Grocery shoppers shouldn't expect meaningful relief. According to the USDA Economic Research Service, food prices overall are predicted to increase 2.7% in 2026. Breaking that down:

  • Food at home (groceries): 2.3% increase expected
  • Food away from home (restaurants): 3.3% increase expected

Restaurant price increases continue outpacing grocery inflation, reflecting ongoing labor costs and rent pressures in the food service industry. For budget-conscious families, cooking at home remains the more economical choice—but savings compared to eating out are narrowing.

The Silver Linings

Not everything is getting more expensive. Several categories should provide relief:

Energy prices: Global oil supply remains robust, and natural gas prices have stabilized. Energy costs, which drove much of 2022's inflation spike, aren't expected to add significant pressure in 2026.

Shelter inflation: The largest component of the CPI is finally showing signs of cooling as rental markets normalize and home price appreciation slows in many markets.

Electronics and goods: Prices for computers, TVs, and other manufactured goods continue their long-term decline as supply chains normalize and technology advances.

What It Means for Your Money

With inflation projected at 2.4-2.8%, your purchasing power continues eroding—just more slowly than in recent years. A dollar today will buy roughly 97-98 cents worth of goods a year from now.

This has several practical implications:

Savings rates matter more: High-yield savings accounts still offering 4-5% APY provide real returns above inflation. Keeping too much in low-yield accounts means losing purchasing power.

Fixed income adjusts: The 2.8% Social Security COLA for 2026, announced based on inflation data, will roughly match price increases—but won't meaningfully improve seniors' living standards.

Wage negotiations: Workers seeking raises should aim for at least 3% increases to stay ahead of inflation. Anything less represents a real pay cut.

The Fed's Dilemma

The persistent above-target inflation creates challenges for the Federal Reserve. With prices still running hot, the central bank has signaled only one rate cut in 2026—fewer than many investors had hoped for.

However, some economists see room for more aggressive action. Mark Zandi of Moody's Analytics predicts labor market weakness could push the Fed to cut rates three times in the first half of 2026, even with inflation above target. The tension between fighting inflation and supporting employment will define monetary policy debates throughout the year.

"The inflation outlook is a low-grade fever—triggered by tariff impacts but mitigated by low energy prices and declines in shelter inflation. It should linger well above the Fed's 2% target."

— J.P. Morgan Asset Management, 2026 Outlook

The bottom line: Inflation isn't the crisis it was in 2022, but it's not solved either. Prices will keep rising faster than the Fed wants, squeezing family budgets and limiting how much the central bank can cut rates. Adjusting expectations—and financial plans—to this "low-grade fever" reality is essential for navigating 2026.