Just how transitory is low inflation?
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Almost a decade into the recovery from the great financial crisis, and following years of ultra loose monetary policy, inflation seems to be numb to the economic developments achieved so far, particularly in the US. With the economy growing at above average gJust how transitory is low inflation?
Almost a decade into the recovery from the great financial crisis, and following years of ultra loose monetary policy, inflation seems to be numb to the economic developments achieved so far, particularly in the US. With the economy growing at above average growth rates quarter after quarter and unemployment running at very low levels for an extended period of time, monetary authorities are still grappling with low inflation as price pressures struggle to gain steam. The Federal Reserve’s preferred measure of inflation, as calculated via the personal consumption expenditure (PCE) index, was at 1.6 per cent in March 2019, coming down from two per cent in June 2018 – the highest it has been since the peak in March 2012. In fact, during the economic expansion since 2009, the average core PCE inflation rate was of circa 1.5 per cent, materially undershooting the Fed’s target of two per cent The Federal Reserve has long maintained that upward price pressures would result from the tight labour market conditions while the economic slack is reeled back in. In anticipation of this, the Fed has increased interest rates nine times over the last three years and initiated a gradual wind-down...