The End of Inflation? The Economist

Inflation was once a high priority for economists, and governments put full force into combatting the decline in the purchase value of their respective currencies. Most governments that target inflation have the phenomenon in control or even worry that the rate is too low, despite historically low interest rates and unemployment rates as well as recent stimulus funding. Traditional economic models would suggest that such trends would increase prices, but targeting along with low oil prices along with global trade and price competition have kept inflation in check. The Economist has issued a special report that suggests “anchored inflation expectations, technological change and the flow of goods and capital across borders have conspired to make inflation a less meaningful – and less malleable – economic indicator.” Trends of low inflation can be self-reinforcing, weakening demand, disrupting monetary policy, increasing real interest rates and putting the credibility of central bankers into question. “Unexpectedly low inflation causes lenders to profit and borrowers to suffer, because debts do not shrink as fast in real terms as they were expected to when loans were agreed,” the report notes. Economists and economic models must adjust accordingly to prevent shocks to the system. – YaleGlobal