US inflation set to rebound

The further absorption of economic slack points to rising inflation in 2016. In 2015 inflation has mainly been held down by the low oil price and strong dollar. These factors will be less of a constraint next year, assuming that both stabilise at close to current levels. 

Headline inflation, currently close to zero, is expected to initially converge quite sharply to the 'core' rate, which is currently considerably higher at 1.9%. As the labour market continues to tighten and economic growth remains at an above-trend pace, a gradual rise is expected in wage pressures. The resulting capacity constraints are expected to also push 'core' inflation higher. For 2016 as a whole, CPI inflation is expected to average 1.9% compared with only 0.1% in 2015