Why low inflation is no surprise

Berkeley

THE fact that inflation has remained stubbornly low across the global North has come as a surprise to many economic observers. In September, the always sharp and thoughtful Nouriel Roubini of New York University attributed this trend to positive shocks to aggregate supply - meaning the supply of certain goods has increased, driving down prices.

As a result, Mr Roubini observed, "core inflation has fallen" even though the "recent growth acceleration in the advanced economies would be expected to bring with it a pickup in inflation".

Meanwhile, the US Federal Reserve "has justified its decision to start normalising rates, despite below-target core inflation, by arguing that the inflation-weakening supply-side shocks are temporary". Mr Roubini concludes that "…