The trend in inflation is confusing those in charge of monetary policy. After a significant uptick in the last part of 2017, it has really stagnated, in stark contrast with the growing dynamism of the economy.
How do I see the year 2018? Low growth and productivity, a declining working population, and an unsustainable rise in animal spirits. Everything comes to an end, and the longer it takes, the worse it is.
Despite quantitative easing and 3 years of more synchronised developed economy growth, it is not clear that inflation has really got any traction. Technology, globalisation, unemployment and changes in working practices have all contributed to the lack of inflationary pressures and still do.
BoAML | We have remained quite bearish on Euro area inflation for the past few years, particularly compared with ECB forecasts (but also consensus), and have highlighted the many downside risks to the inflation outlook.
Benjamin Cole via Historinhas | It is too bad in some regards that Richard “Inspector Clouseau” Fisher, the former president of the Federal Reserve Bank of Dallas, in no longer ensconced in that position. For one, he was always great copy. For seconds, he was one of the most infallible reverse indicators of Post War Era, and economic soothsayers could bet against a Fisherian proclamation with a rare calm.
The ECB’s main priority will be to fuel confidence in the financial markets and inflation will be its alibi for this. In February, eurozone CPI receded to -0.2% year-on-year and, in the short term, the region should be prepared for negative rates to continue.
London | UBS | At the risk of making an obvious point, the fall in crude oil prices is not all there is to the impact of oil on consumer price inflation.
UBS | Monetary policy remains stimulative globally, and labor markets are tightening. Yet, global inflation is low.
SAO PAULO | By Marcus Nunes | As soon as you mention “market monetarist”, NGDP comes to mind. While for most the all-encompassing variable is inflation, to MMs the “target” variable is NGDP being kept at a steadily rising trend level.
SAO PAULO | By Marcus Nunes via Historinhas | In The Risks to the Inflation Outlook SF Fed researcher Vasco Cúrdia writes: the median inflation forecast is not expected to return to the FOMC target of 2% until after the end of 2016. The uptick in inflation in the first half of 2014 could lead one to believe inflation is finally on the path back toward its target. However, inflation has shown similar patterns several times before and each time the uptick has never lasted very long. According to this model, we should not see inflation begin to recover more firmly until around the end of 2015.