Although the CPI inflation rate dipped into negative territory in January, this bout of deflation is likely to be brief and it won't prevent the Fed from beginning to raise its policy rate from near-zero in June. The decline was entirely due to the slump in energy prices. Admittedly, at 1.6% in January, core CPI inflation is also below the Fed's 2% target. But once the temporary impact from the pass-though of lower energy prices and the dollar's recent appreciation fade, core inflation should rebound back above that 2% target next year.
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