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Edition October 4, 2017 - Crédit Agricole S.A.
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  • Edition October 4, 2017

    World – Macroeconomic Scenario for 2017-2018: Inflation, the long absence

    We had despaired of ever seeing investment pick up and jobs being created, and then of seeing wages gain traction. These classic ingredients of a burgeoning cycle are now in place, even if to differing degrees from one economy to another. On the other hand, there is no sign of the sort of inflation one would expect to see at this point in the cycle. What should we be making of such a long absence? That it reflects structural changes in price formation and also that it makes the oversight of central banks and inflation-targeting far more complex.

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  • A relentless, yet non-inflationary expansion

    Picture a global economic cycle that is prospering without generating the imbalances that traditionally herald a downturn. "Accommodative" monetary policies: there is no hurry and we must safeguard the markets as US quantitative tightening kicks i...

  • Content:

    - Developed countries – The high plateaux
    - Emerging countries: Stronger growth to face the challenges
    - Oil – A market held back by glut and uncertainty 
    - Monetary policy – Heading for quantitative tightening
    - Interest rates – What if the markets were to progressively assert their prerogative?
    - Exchange rates – The rebirth of the euro
    - Economic and financial forecasts
  • Extract:

    Because interest rate cuts alone seemed incapable of fending off deflation, the central banks implemented unconventional monetary policies. Now that the deflation threat has been averted, the "heterodox" monetary arrangements will be progressively tightened. And while inflation is still very shy of the target, interest rate hikes are being deferred or brought in at snail"s pace.

    The issue of pace is essential. If inflation accelerates due to an exogenous shock or ends up resuming but with an unusual delay, it could come after the real cycle has peaked suggesting that any central bank action will be too late, so that tightening would be pro-cyclical. If inflation does not pick up to any significant degree, perhaps it might be time to revise inflation targets down or even overhaul the system of inflation-targeting completely, at least in its "pure" version, when the inflation target is not "even" combined with an employment target.

  • Associative topics : Africa and Middle East | Asia and Oceania | CEE and Central Asia | Economics | Europe | Latin America | North America

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