Should-Read: Nouriel Roubini: The Mystery of the Missing Inflation

Should-Read: Nouriel Roubini: The Mystery of the Missing Inflation: “The recent growth acceleration in the advanced economies would be expected to bring with it a pickup in inflation…

…Yet core inflation has fallen in the US this year and remains stubbornly low in Europe and Japan…. One possible explanation… is… developed economies have been experiencing positive supply shocks…. Globalization… weaker unions and workers’ reduced bargaining power… oil and commodity prices are low or declining… technological innovations…. If… the shock is permanent, central banks should ease monetary conditions…. [But] the Fed has justified its decision to start normalizing rates… by arguing that the inflation-weakening supply-side shocks are temporary…. Central banks aren’t willing to give up on their formal 2% inflation target, [but] they are willing to prolong the timeline for achieving it…. This central bank patience risks de-anchoring inflation expectations downward…

AUTHORS:

Brad DeLong
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