Will inflation in America finally take off?

Inflation in America has been subdued in recent years. But that will change, says Ana Gil on Bondvigilantes.com. One reason to think so is residential rents, which comprises 40% of the core inflation measure (inflation excluding volatile food and energy prices).

Vacancy rates are at an all-time low, suggesting the market is tightening quickly. Rents thus look likely to rise by 4%-4.5% in the next 12 months. Health-care costs, also a key component of inflation, are on an upward trajectory, with Obamacare increasing demand against "a relatively constant supply".

Meanwhile, the unemployment rate has fallen below 6% and most surveys of employee compensation reveal that "broad-based wage pressure is here", says Deutsche Bank.

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The quarterly Employment Cost index, which was the main wage gauge the Fed watchedduring the 1990s, shows that wages and salaries rose at an annualised pace of 3% in the third quarter.

The widely watched average hourly earnings measure has yet to follow suit, but this tends to track the number of firms planning to increase compensation, households' income expectations and the number of job openings. These indicators are all rising robustly, especially the latter, which has reached a 12-year high.

Analysts now reckon the tight labour market may prompt interest-rate hikes sooner rather than later.

And given that central bankers are often too slow to move to quash inflation, it may not be long before they start to fret about theFed letting inflation soar out of control.