We think the average inflation rate in advanced economies will remain lower than it was in the pre-crisis period for the foreseeable future, for several reasons. In some economies, there is more spare capacity around than meets the eye; in others inflation expectations have become stuck at a low level; and most central banks appear unwilling to provide even more policy support. But most importantly, globalisation and technological change have weakened the relationship between spare capacity and inflation.
This Focus is an expanded version of a presentation given at the Capital Economics Annual Conference, “Ten years after the financial crisis: Is the global economy finally back to health?” held in London, Amsterdam, Stockholm and Zurich in October 2017.
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