The conventional wisdom is that the rebound in core inflation mainly reflects a permanent rebound in the growth rate of housing costs. However, the pick up over the past few months is more to do with the temporary effects of the recent spike in commodity prices and the Japan-related disruptions to motor vehicle production. Accordingly, we are more inclined to believe that core inflation will drop back again in 2012 and deflation could yet re-emerge as a significant threat.
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