Deflation risk overrated

- "The recent downtrend in core inflation has been troublesome, but we find empirical evidence to support the view that so long as the economy continues to recover, even at a sluggish pace, inflation could soon bottom and begin moving higher."
- "Our analysis finds that the relationship between economic slack and core inflation, which had weakened substantially in the 1990s, has strengthened again in recent years. However, it also appears to have changed, with “speed” effects now becoming a good deal more important than “gap” effects. That is, the positive effect on inflation of diminishing slack is apparently now more important than the negative effect of the high level of slack itself. That is, inflation will begin to rise again as unemployment trends lower."
- "This means the Fed’s “low for long” policy could well be abbreviated as soon as the pace of economic recovery begins to show clear signs of picking up sustainably."
DeutscheBank Global Economic Perspectives 20100714

No comments:

Post a Comment