Has the World Managed to Conquer Inflation? – BloombergBusinessWeek 01-28-13

Salient to Investors:

Handing monetary policy to independent central bankers appears to have worked.

The Cleveland Fed says markets expect US inflation over the next 10 years to stay below 1.5 percent, while the IMF expects below 2 percent in advanced economies and 6 percent in emerging markets for the next two years.

The World Bank reports average annual inflation across 175 countries in the first decade this century was under 8 percent, versus 66 percent for the prior decade and and 48 percent for the decade before that. Since 1999, 75% of all countries have had inflation below 10 percent. Only one country had a 66 percent inflation rate in 2012 versus 20 countries in 1993.

Haroon Mumtaz and Paolo Surico at the Bank of England said the drop is due by the lack of an external shock, like the oil shock in the 1970s, and by better government policies.

Jeroen Klomp and Jakob De Haan at the University of Groeningen say the growing independence of central banks has kept inflation low.

Sami Alpanda and Adam Honig says monetary policy loosens in the runup to elections in developing countries where central banks are beholden to politicians.

Nicola Baini and Douglas Laxton at the IMF found 12 emerging economies that adopted inflation targeting between 1998 and 2002, resulting in lower inflation and lower volatility in inflation over time, without a negative impact on growth or interest and exchange rate volatility.

Niall Ferguson says high inflation helped collapse democracy in Weimar Germany in the 1930s.

Michael Bruno and William Easterly when at the World Bank found no clear link between growth and any inflation rate under 40 percent.

Read the full article at http://www.businessweek.com/articles/2013-01-28/has-the-world-managed-to-conquer-inflation#r=read

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