Keeping prices down traditionally comes at a heavy cost, as harsh monetary policy leads economies into recession and pushes up jobless rates. Not this time.
| Central bankers are increasingly confident that inflation can be vanquished without driving up unemployment sharply, as economists forecast “immaculate disinflation”.
“Immaculate disinflation, whereby inflation returns sustainably to target without a significant rise in unemployment, has become the base case,” he said.Eurozone price growth was 2.6 per cent in February, down from an all-time peak of 10.6 per cent in 2022. Inflation has fallen from a high of 11.1 per cent in the UK to 4 per cent, and from 9.1 per cent to 3.2 per cent in the US.
Adriana Kugler, a member of the Federal Reserve board, said this month: “While interest rates rose rapidly, some feared that the cost of disinflation would be persistently elevated unemployment. But over the past year or so ... we have seen inflation cool significantly, falling more rapidly than at any time since the 1980s.Advertisement
Jennifer McKeown, chief global economist at Capital Economics, said high wage growth, which policymakers monitor closely as a key driver of domestic price pressures, resulted from higher inflation expectations linked to elevated energy prices and pandemic-related worker shortages in some sectors. “The reason that the supply shocks of the ’70s-’80s became entrenched was central banks didn’t understand the role of inflation expectations and the cost-of-living adjustments in many labour contracts,” said Mark Zandi, chief economist at Moody’s Analytics.
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