Inflation

(from The Economist)

Continuing on with the inflation theme the past couple of days, it seems inflation is in the news everywhere. The big worry is that global monetary conditions are far too loose, thanks to rock-bottom interest rates, bloated central bank balance sheets in the rich world, and to emerging economies' inability, or unwillingness, to tighten policy enough in response; however, much of the recent rise in inflation is driven by one-off factors. In no big economy, emerging or rich, is inflation at the peaks reached in 2008; core inflation is still quite modest.

Over time, temporary price pressure can become entrenched, through either consumers' expectations of future inflation or workers' demands for higher wages. That does not seem likely to happen. In developed economies, unemployment and unused capacity are high, which would suggest lower, not higher inflation down the road. The loan exception is Germany.

It's a different story in emerging economies, but even there, the dangers can be exaggerated. In China, for example, rising wages and prices can help re-balance its economy towards domestic spending.

Inflation is always a cause for concern; but today, not for panic.

GB