Core CPI inflation was subdued at 1.8% in October, but there were signs that the transitory factors weighing on core inflation earlier this year are now starting to fade. Medical care price inflation has bottomed out, while the surge in replacement demand for vehicles damaged in the recent hurricanes suggests that both new and used vehicle price inflation will rebound sharply. The three-month annualised growth rate of core consumer prices has surged back up to its highest level since February, suggesting that the annual inflation rate will also continue trending higher. With the weaker dollar putting upward pressure on import prices and the tightening labour market set to push wage growth higher, we expect core inflation to rise steadily over the next couple of years.
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