TheEconomistOctober 12th 2019 3
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nflationusedtobethescourgeoftheworldeconomyandthe
baneofAmericanpresidents.In1971 amidanoverheatingecon-
omyRichardNixontooktotelevisiontoannouncea freezeon“all
pricesandwagesthroughouttheUnitedStates”.A boardofbureau-
cratsruledonwhatthismeantforeverythingfromgolfclubmem-
bershipstocommodityfutures.GeraldFord,Nixon’ssuccessor,
preferreda grassrootsapproach.Hedistributedbuttonsbearing
hisslogan:win, for“whipinflationnow”.RonaldReagan,running
forofficefouryearslateramidanothersurgeinprices,declaredin-
flationtobe“asviolentasa mugger,asfrighteningasanarmed
robberandasdeadlyasa hitman”.
Todaythelethalassassinhasgonemissing.Mosteconomiesno
longerstrugglewithrunawayprices.Insteadtheyfindinflationis
toolow,asjudgedbytheirinflationtargets.Adecadeofinterest
ratesatornearrock-bottomhasnotchangedthat.Norhasthe
printingofmoneybycentralbanksinAmerica,theeurozone,Brit-
ainandJapanthathasexpandedtheirbalance-sheetsbeyonda
combined$15trn(35%oftheircombinedgdp).Norhaveunem-
ploymentratesthatareinmanycountriesthelowesttheyhave
beenfordecades.
Theimfcountsamongitsmembers41 countriesinwhichmon-
etary-policytargetsinflation.AddintheeurozoneandAmerica
(wheretheFedhasmultiplegoals),andyouget43.Ofthose 28 will
eitherundershoottheirinflationtargetsin 2019 orhaveinflation
inthebottomhalfoftheirtargetrange,accordingtothefund’s
mostrecentroundofforecasts.(Whenthoseforecastsareupdated
onOctober15th,afterthisspecialreportgoestopress,thatnumber
willprobablyrise.)Bygdp91%oftheinflation-targetingworldis
aninflationlaggardonthismeasure.Thatincludesnearlyallthe
advancedeconomiesunderexamination—Icelandisthesoleex-
ception—andmorethanhalfoftheemergingmarkets.
Thisshiftintheinflationlandscapereflectsboththesuccesses
andthefailuresofeconomicpolicy.Theadventofinflation-target-
ingcentralbankssincethe1990shasgraduallyimmunisedecono-
miesagainstrunawayprices.Butpolicymakersseemeitherun-
willingorunabletostopinflationfallingshortoftheirtargets.
Thisspecialreportwillarguethatanchoredinflationexpecta-
tions,technologicalchangeandtheflowof goodsandcapital
acrossbordershaveconspiredtomakeinflationa lessmeaning-
ful—andlessmalleable—economicindicator.Centralbanksare
thereforefindingtheirtargetshardertohit.Atthesametime,con-
straintsonmonetarypolicymeanthattheriskofinflationshort-
fallsloomslargerthanthatofexcessivepricerises.Centralbank-
ersandpoliticiansmustfindwaystoadapteconomicpolicytothis
newworld.
Disinflationnations
Lowinflationisstrikingoverboththelongtermandtheshort
term.Inthelongtermitistheculminationofadecades-long
trend.Therichworldconqueredrunawaypricesbythelate1990s
asgovernmentsmadecentralbanksindependentandgavethem
inflationtargets.Inthe2000sandtheearly2010scommodity-
priceboomskeptpricesrisingata decentclip.Butsincetheoil
pricecrashedin2014,inflationabove2%hasbeenrare.Inemerg-
ingmarketsit ishigher,butthedirectionofchangeisthesame(see
chartonnextpage).Fornearly two decadeseconomistshave
The end of inflation?
Special report
Inflation is losing its meaning as an economic indicator, says Henry Curr
The world economy
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