Janet Yellen and her colleagues appear undeterred by low inflation and on course to hike rates again before the end of the year. Here in Canada, interest rates have risen twice despite a very benign inflation environment. The expectation is that, due to its lagged relationship with growth and the output gap, inflation will gradually rise back to respective targets.
However, that relies in part on the hope that factors weighing inflation down currently are, as Yellen says, “transitory”. While a one-time shift down in telecomm services has had an impact in the US, some other factors depressing inflation may take longer to dissipate.