Although acyclical inflation has been low on average over the past several
years, there is building evidence that it may be on the verge of rising more
First, the sharp depreciation in the trade-weighted dollar since its
recent highs in early 2017 should help lift import price inflation and provide a
tailwind to acyclical inflation. Second, recent data on health care inflation has
shown a sharp uptick.
If this trend is sustained, acyclical inflation will rise,
helping to drive core inflation higher, eventually overshooting the Fed’s target as
our forecast implies.