Mystery of the Missing Inflation


Nouriel Robini wrote on this very hot and pertinent topic in a Project Syndicate column, which is worth taking stock. His take? No one knows what the causes of “lowflation” are, so central banks will have to continue this high wire act between risking deflation or causing another asset price bubble.

I must say though, that I am — humbly — closer to the BIS line: “[I]t is time to lower the inflation target from 2% to 0% – the rate that can now be expected, given permanent supply shocks. Trying to achieve 2% inflation in a context of such shocks, the BIS warns, would lead to excessively easy monetary policies, which would put upward pressure on prices of risk assets, and, ultimately, inflate dangerous bubbles.”

Here are two earlier pieces on the same topic — one from FT’s S. Johnson and another from WSJ’s G. Ip — and an earlier article posted up here (a Project Syndicate article by Stephen Roach).