EZ inflation has been falling steadily since early 2013, turning negative in late 2014. This column surveys a host of recent research from Banca d’Italia that examined the drivers of this fall, its macroeconomic effects, and ECB responses. Aggregate demand and oil prices played key roles in the drop, which has consistently ‘surprised’ market-based expectations. Towards the end of 2014 the risk of the ECB de-anchoring inflation expectations from the definition of price stability became material.
Stefano Neri, Stefano Siviero, Saturday, August 15, 2015 - 00:00
Plamen Iossifov, Jiří Podpiera, Monday, February 16, 2015 - 00:00
Laurence Ball, Sandeep Mazumder, Wednesday, January 7, 2015 - 00:00
Jean-Pierre Landau, Tuesday, December 2, 2014 - 00:00
Mickey Levy, Friday, February 21, 2014 - 00:00
A popular view among economic commentators is that rich countries face a serious risk of deflation, and should adopt aggressive macroeconomic stimulus policies to ward it off. This column argues that despite similar headline inflation rates, the US, Europe, and Japan in fact face very different macroeconomic conditions. In the US, much of the recent disinflation is attributable to positive supply-side developments. In Europe, an aggressive round of quantitative easing might encourage policymakers to delay the reforms that are necessary to avoid a prolonged Japanese-style malaise.
Olivier Coibion, Yuriy Gorodnichenko, Friday, November 15, 2013 - 00:00
During the Great Recession, advanced economies have not experienced the disinflation that has historically been associated with high unemployment. This column shows that using consumers’ (as opposed to forecasters’) inflation expectations restores the traditional Phillips curve relationship for recent years. Consumers’ inflation expectations are more responsive to oil prices than those of professional forecasters. The increase in oil prices between 2009 and 2012 may in fact have prevented the onset of pernicious deflationary dynamics.
Robert Ophèle, Wednesday, February 11, 2009 - 00:00
The recent rapid fall in inflation, amidst a financial crisis and a very sharp economic slowdown, has raised the spectre of deflation. But, this column argues, current dynamics in France and the euro area are actually characteristic of a much more positive disinflationary trend, resulting from a temporary correction of certain prices, such as energy prices.