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). Recall that the theme of the “end of inflation” refers to some advanced countries, and that emerging countries have inflation rates close to 4% - 5% (Russia, Brazil, India in particular) while Turkey is struggling with inflation close to 15%.

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. With regard to central banks, there are talks on inflation targeting (is it still useful, is it credible or dangerous to adopt another target such as the price level?), on strategy (should we keep low rates for a long time and take risks on financial stability?) and on tools (are non-conventional monetary policies now part of the “classic” central banker toolkit?).

For governments, it is a matter of properly assessing the fiscal and tax leeway “offered” by the low interest rate and low inflation environment: is this reasonable in a world where the accumulation of debt has never really stopped for almost all advanced countries? How to be sure that fiscal and tax complacency will not be back?


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Senior Economic Advisor