Has the World Managed to Conquer Inflation?

Among monetary economists, the past few years have been marked by a contentious debate. On one side are those who believe the world’s central banks need to do more to stave off deflation and recession by pumping more credit into the system; on the other are those who fear inflation and stagnation if the banks do exactly that.

To a large extent, the pro-stimulus camp has carried the day in the U.S. and Europe. And yet the results have been unexpected: Despite the aggressive measures taken by central banks to revive major economies, actual inflation around the world has continued to remain at historic lows. The Cleveland Fed suggests the markets think inflation in the U.S. over the next 10 years will remain below 1.5 percent. That’s down from expectations of closer to 5 percent in the early 1980s. Around the world, IMF forecasts released this month project inflation of below 2 percent in advanced economies and around 6 percent in emerging markets for the next couple of years.