Much of the acceleration in the early months of this year likely reflects a rebound from unexplainably low inflation last year and the feed-through of increases in commodity, energy, and import prices. The best indications are that some economic slack persists and that long-term inflation expectations are stable, which bolsters the inference that the economy has not entered a situation of steadily rising inflation.
Most economic forecasts point to a gradual approach toward full utilization of the productive capacity of the economy. Commodity, energy, and import prices are unlikely to continue moving up at the speed of recent quarters. Productivity growth is still strong. And elevated profit margins are available to absorb  BIS Review 34/2004  5  increases in unit labor costs for a while.