Core inflation will bounce back

Despite the weaker core inflation readings over the past couple of months, we still expect core inflation to climb gradually, rising above the Fed's 2% target in the first half of next year. Admittedly, the stronger dollar will help to keep a lid on import prices. But low vacancy rates point to a rise in the growth rates of rents. We also anticipate a more marked rebound in medical care price inflation, which has been dragged down by a series of one-off factors. As the unemployment rate continues to decline, rising wage inflation should also put upward pressure on underlying price inflation.