NEW YORK: Debates about inflation in advanced economies have changed remarkably over the past decades.
But what if that is the wrong lens through which to view current conditions, and we are actually in the middle of a process in which strong disinflationary supply-side forces eventually give way to the return of higher inflation?In that case, monetary policymakers and market participants would need to consider quite a different opportunity-risk paradigm than the one currently being pursued.
So far, that risk has led to protractedly low or negative policy rates and bloated central-bank balance sheets, despite the potentially deleterious effects of such policies on the integrity of the financial system.In fact, some economic observers favour the ECB not just maintaining negative interest rates, but also restarting asset purchases under its quantitative-easing programme.
FILE PHOTO: The Google logo is pictured at the entrance to the Google offices in London, Britain January 18, 2019. REUTERS/Hannah McKay/File PhotoThe Amazon/Google/Uber effect has turbocharged a disinflationary process that began with the acceleration of globalisation, bringing far more low-cost production online and reducing the power of organised labour in advanced economies .
At the same time, as expectations of continued low inflation become more entrenched, an upward price shock could expose vulnerabilities and increase the risk of policy mistakes and market accidents.