Investment spending should also benefit from a better international outlook and the improvement in U.S. trade competitiveness caused by the dollar’s recent weakness. The softer dollar and solid growth abroad also suggest that the trade sector will no longer be a significant drag on economic growth. Turning to the outlook for inflation, I have been surprised by the persistence of the shortfall from the FOMC’s 2 percent long-run objective. While some of this year’s shortfall can be explained by one-off factors, such as the sharp fall in prices for cellular phone service, its persistence suggests that more fundamental structural changes may also be playing a role. These include the increased ability of prospective buyers to compare prices across different sellers quickly and easily, the shift in retail sales to online channels of distribution from traditional brick-and-mortar 1/6  BIS central bankers' speeches  stores, and the consequences of these changes on brand loyalty and business pricing power. Over the coming months, I hope that we will be better able to differentiate between these competing explanations. If it turns out that structural changes have played a significant role, I would generally view this as a positive, rather than negative, development. It would imply that the U.S. economy could operate at a higher level of labor resource utilization without generating a troublesome large rise in inflation.
Looking ahead, on the basis of current oil futures prices, headline inflation is likely to pick up further in the near term, largely reflecting movements in the annual rate of change of energy prices. However, measures of underlying inflation are expected to rise more gradually over the medium term, supported by our monetary policy measures, the expected economic recovery and the corresponding gradual absorption of slack. Turning to the monetary analysis, broad money (M3) continues to expand at a robust pace, with its annual rate of growth increasing to 4.8% in November 2016, up from 4.4% in October. As in previous months, annual growth in M3 was mainly supported by its most liquid components, with the narrow monetary aggregate M1 expanding at an annual rate of 8.7% in November, up from 8.0% in October. Loan dynamics followed the path of gradual recovery observed since the beginning of 2014. The annual growth rate of loans to non-financial corporations was 2.2% in November 2016, after 2.1% in the previous month. The annual growth rate of loans to households was 1.9% in November, after 1.8% in October. Although developments in bank credit continue to reflect the lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and nonfinancial sector balance sheets, the monetary policy measures put in place since June 2014 are significantly supporting borrowing conditions for firms and households and thereby credit flows across the euro area.