The worst of inflation is over, Congressional Budget Office says

According to the Congressional Budget Office, the nightmare of surging prices is starting to fade.

The agency updated its economic forecasts on Wednesday and they are encouraging. Despite growing fears of a recession, the office sees growth holding strong. After several months of the fastest inflation since the 1980s, price growth is expected to have peaked.

The PCE price index is one of the most closely watched measures of US inflation. In the year through March, there was a 6.6% annual gain, which is down from the 5.5% increase seen in the year through last year. It also shows a return to rates last seen in May 2021, signaling that the inflation surge will be reversed by the end of the year.

The CBO expects core PCE to rise 3.8% this year, following the 4.6% increase last year. Core inflation is expected to hit 2.5% in 2023 and 2% the following year.

Projections for the Consumer Price Index are very encouraging. If the estimates from the CBO are true, inflation will peak in the spring of 2022, and return to more sustainable levels by the end of next year.

The CBO expects the economic rebound to continue. The rebound from the contraction seen in the first quarter will lead to a 3.1% growth in the gross domestic product. Growth is projected to ease to 2% in the year 2023, as interest rates and government support dwindle.

The unemployment rate is expected to rise by the end of the year. The labor market is on track to finish its rebound in the summer, and the CBO estimate suggests that progress will continue through the rest of the year.

To be sure, a lot of uncertainties could render the forecastsmoot. The latest coronaviruses outbreak in China could keep global trade from recovering, as the inflation problem is linked to the tangled global supply chain. Russia's invasion of Ukraine could cause shortages of wheat, crude oil, andfertilizer. It could be harder for the Fed to rein in price growth if inflation expectations go up.

The US is close to a pivot point in the economic recovery, according to the updated projections. The CBO sees brighter days ahead after a year of inflation and fears of an economic downturn.