The Inflation Situation

Can inflation continue to decline, and what will drive it down?

Editor’s note: with major central banks meeting over the coming weeks and all eyes on interest rates, we offer some perspective on where inflation has been, and where it is going.

A few years ago, I went on a hike through the Wicklow mountains south of Dublin. The views were spectacular, especially of Guinness Lake; imported white sand at the foot of the water makes it look like a perfectly poured pint. We enjoyed one or two at the end of our trek.

We struggled on the ascent, but when we passed the peak, I assumed that the hard work was done. My hosts cautioned, however, that the trail can get bumpy on the way down. I was urged to watch my step and not relax until we had returned to ground level.

I was thinking of that adventure as I contemplated the trek we’ve experienced with inflation during the past three years. The price level took a steep climb, creating some rocky times for consumers. But the other side of the mountain has seemed surprisingly smooth. As leading central banks get back to business this month, they will have to watch their steps: there could still be some bumps on the path back to price stability.

Advanced Economies Core CPI