2019-10-12_The_Economist_

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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