NEWS

Missingflation: the battle to bring inflation back Falling prices may seem like good news to consume


Keeping inflation under control has been the goal of major central banks ever since it hit generational highs during the oil crises of the 1970s. During the 1980s, inflation trended down as tackling price rises became a priority for policymakers around the world. But in recent years, inflation has gone missing.

Inflation has fallen below official targets (i.e. typically 2%) in many countries, or even descended into deflation (i.e. persistently falling prices). Moreover, markets and central banks have consistently failed to predict this trend, repeatedly forecasting higher price increases only to be surprised when they continue to fall.

Today central banks find themselves fighting to bring back inflation rather than suppress it. To achieve their goal, they have ventured into the uncharted territory of purchasing assets and/or introducing negative interest rates. But are these the right measures?

What’s been driving inflation down?

Better monetary policy, liberalisation of markets, technology, and globalisation, including the global integration of China, explain much of the disinflationary trend of the 1980s and 1990s, when lower, stable inflation was celebrated as an achievement. Since the global financial crisis of 2008-09, however, these trends have become deflationary, as economies face overcapacity, high debt burdens, excessive savings and low productivity.


Featured Posts
Recent Posts
Archive