Inflation is no longer scary. In the last crisis it did not decline rapidly and it seems unlikely that monetary policy strategies will repeat the mistakes of the XNUMXs, pushing the system towards stagflation (ie rising prices without economic growth). It is what emerges from a study by the International Monetary Fund, which highlights how inflation expectations are now more stable and anchored to central bank objectives. Inflationary responses to cyclical changes in unemployment have also eased.
According to the study, as long as central banks maintain their independence from politics, monetary stimulus seems appropriate to the current cyclical weakness in most advanced economies. The combination of a relatively flat Phillips curve – i.e. a low response of inflation to fluctuations in unemployment (the Phillips curve connects these two quantities) – and stable price expectations suggest that a temporary policy of strong stimulus to the economy can have only marginal effects on inflation. The cost of a prolonged period of high unemployment rates undoubtedly appears greater.
According to the IMF, however, we must keep our guard up and we must also mention the cases of Ireland and Spain which, in the XNUMXs, despite low consumer price inflation, recorded a growth in economic imbalances which in rampant price inflation of other assets including real estate.
These findings by the International Monetary Fund have been interpreted by international observers as a encouragement to the ECB to undertake an even more expansive monetary policy, cutting rates again, on the basis of the recent maneuvers of the new governor of the Bank of Japan, Haruhiko Kuroda, whose interventions also received the approval of the Fed.
