Is Inflation Definitely Dead Or Simply Dormant? Consequences For Central Banks
Inflation never disappears completely. In history, there have been periods when it was dormant, but revivals have always been painful. What is striking at present is the inability of some countries to boost inflation despite low rates, liquidity injection programs… The BoJ and the ECB have made the bet (losing for the moment) that a ultra-accommodative monetary policy would quickly translate into a rise in inflation rates, while the Fed has opted for a “friendly” normalization of its monetary policy, helped in this, it must be said, by a fiscal and tax policy that has never been as pro-cyclical as in recent years (the Trump years).
Why is it important to question the end of inflation? First of all, because there are no more inflation expectations and a rise - even a small one - is likely to have significant impacts on the financial markets and economies, and second, because it also affects very directly the objectives, instruments and prospects of central banks and governments.
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