US inflation will edge higher

The result of falling energy prices and a rising dollar has been the disappearance of inflation. The next year is likely to see a partial unwinding of these influences. Falling energy prices cut 1.7 percentage points from inflation over the past year. Oil prices are unlikely to return to their former level, but a slow recovery will still add 0.8 percentage points to inflation over the next year. Likewise, the high dollar has cut about 0.4 percentage points from both core and headline inflation. This influence will partially reverse over the course of 2016.

"We expect CPI inflation to rise to 3.0% by the first quarter of 2017, before heading lower as these re-inflationary forces wane", notes TD Economics. 

The final element to pull inflation higher is the tightening labour market. The unemployment rate is expected to fall below 5.0% - a level that is consistent with stable inflation. As it does, it will add to the pressure on wages, which are already displaying a broadening pattern of sturdiness across industries. 

Analysis at the regional level indicates that weakened wage growth within oil producing states has depressed the national level since mid-2014. However, a distinct upward trend is evident among the oil-consuming states, which represent the majority of the U.S. landscape.