"After being given up for dead, inflation is gradually coming back to life". Inflation in our economies is sometimes feared by general public. Inflation levels have been below the Fed's preferred 2% target level, causing banks to openly entertain "inflation bubbling over 2%". Furthermore, "The intellectual case for low inflation is also showing cracks", leading economists curious as to whether or not inflation rate will soon increase.
Investors continue to remain skeptical that inflation will rise above 2% percent although"many of the assumptions that underpin their skepticism are no longer warranted". Since oil prices have reached an extremely low levels, it is unlikely they will fall any further. Rates that are typically inversely related, inflation and unemployment rate are both low. Since 2007, unemployment has fallen from 10% to 5%, and looks to continue that way as Yellen speaks approvingly of allowing unemployment to fall to inflation accelerating levels. This is leading economists to fearfully think that they may no longer be related in this way. This makes the already difficult task of controlling inflation harder, and raises the bigger question... how will the fed deal with the slow economic growth rate?
http://www.wsj.com/articles/inflation-long-quiescent-begins-to-stir-1477861130
Slow economic growth is not bad. In fact, we should be worried about if growth is stagnant. As discoveries of new inventions are being made growth will not be immediate. It goes back to the Solow Model and how we are at an incline of leveling out to our steady state.
ReplyDeleteKesh makes a good point. Short economic growth is frequently common following a financial crisis like that of 2007 financial crash.
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