Over the last several months, inflation has increasingly taken center stage for Federal Reserve (Fed) watchers. While the deflation theme of early 2016 has all but disappeared, and conviction around higher but still healthy inflation (“reflation”) that appeared in the months following the U.S. election has settled considerably, a largely healthy labor market is putting a spotlight on the other half of the Fed’s dual mandate, low and stable inflation. We believe modestly higher inflation over the next year is likely as U.S. and global growth accelerates and wage pressure increases as the labor market tightens further. However, forces are in play that should keep any larger buildup of inflationary pressures at bay, including below-historical capacity utilization, stable commodity prices, potential for labor force expansion through a rise in the participation rate, and low inflation expectations. This week, we look at some of the factors that may impact inflation in the next year.