Economics Weekly: Inflation - Some Future Upside Potential

Friday, April 5, 2019

Following the "Powell Pivot" and similar shifts by other developed market central banks, it has become clear that central bankers have effectively abandoned the fight against inflation, and are now fully committed to underwriting both growth and inflation. Chairman Powell has even referred to low inflation as being "the biggest challenge of our time." Central bankers seem to have essentially reached the same conclusion financial market participants reached several years ago—i.e., with inflationary risks tilted more to the downside, the risks of tightening too much far outweigh the risks of not tightening enough. While this is certainly true with regards to inflation in the near term, it should not be confused with the view that it is dead and buried forever. With that in mind, in this week's Economics Weekly, we look at the recent trends in "sticky" and "flexible" prices and what those tell us about current and near-term inflationary trends; and we also take a stab at listing five factors that could be key sources for inflationary pressures over the longer term.

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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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