Turning Japanese? Thoughts on inflation

OpinioPro Selection
By March 25, 2019 14:02

Turning Japanese? Thoughts on inflation

Japan has had so little inflation in its core consumer price indices that it has just experienced a sobering anniversary: 20 years of zero interest rates. Whether Japan’s experience provides a roadmap for the rest of the developed world is still open to debate. What is clear is that, despite the most extreme monetary policies ever seen, the world has not seemed to be able to generate the levels of consumer price inflation that conventional economic thinking has expected. Here, we look at why this is and what we might expect in the future. Structural disinflation prevails for now Exactly why domestic monetary inflation has not created consumer price inflation is not well understood, but is likely to relate to a number of factors such as the nature of quantitative easing (QE) – the impact of which has been limited to the financial sector; globalisation; demography; debt growth; the impact of technologies such as automation on employment; and the effect of cheap money on pricing power in the economy, to mention just a few. 

Japan has had so little inflation in its core consumer price indices that it has just experienced a sobering anniversary: 20 years of zero interest rates. Whether Japan’s experience provides a roadmap for the rest of the developed world is still open to debate. What is clear is that, despite the most extreme monetary policies ever seen, the world has not seemed to be able to generate the levels of consumer price inflation that conventional economic thinking has expected. Here, we look at why this is and what we might expect in the future. Structural disinflation prevails for now Exactly why domestic monetary inflation has not created consumer price inflation is not well understood, but is likely to relate to a number of factors such as the nature of quantitative easing (QE) – the impact of which has been limited to the financial sector; globalisation; demography; debt growth; the impact of technologies such as automation on employment; and the effect of cheap money on pricing power in the economy, to mention just a few. 

OpinioPro Selection
By March 25, 2019 14:02

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