The world is caught in a low inflation trap

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The world is caught in a low inflation trap. What do Canada, Germany, Italy, the UK and the US have in common? All of them experienced a peak in the inflation rate about mid-2011, and their inflation rates today are lower than they were then. All central banks in these countries have an inflation target of 2%. But, except for the UK, which is now hitting the 2% target, all have fallen short, and two (Canada and Italy) have inflation below 1%. The current U.S. policy stance is a trap. They intend to maintain the interest rate target at essentially zero, possibly into 2016. But, particularly as the economy continues to strengthen, most forces are pushing short-term real rates of return up. With short-term nominal rates of return pegged at zero by the central bank, the inflation rate has nowhere to go but down. Read the full blog post (VIEW LINK)

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