Central Banks Not Addressing Global Deflation Risks

Federal Reserve Chair Janet Yellen and her international counterparts are suffering from a case of what psychologists call confirmation bias: They keep insisting inflation will accelerate even as it continues to ebb.

That’s the diagnosis of Ethan Harris, co-head of global economics research at Bank of America Corp. in New York. He says central bankers are seeing what they want to see by blaming subpar inflation in their countries on temporary, partly home-grown forces. That risks ignoring more lasting, global influences ranging from weak worldwide demand and more emerging-market competition to cheap labor in developing nations, cooling commodity prices and technological breakthroughs.

“There is much lower-than-expected inflation showing up in too many places in the world to dismiss it as transitory,” said Allen Sinai, chief executive officer at consultant Decision Economics Inc. in New York.

Almost two-thirds of the 121 economies tracked by Bloomberg are experiencing smaller gains in consumer prices than a year ago, with many undershooting their goals. Global inflation was just 2 percent in February, the lowest since late 2009, when the world was struggling with recession, according to a tally by economists at JPMorgan Chase & Co.


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Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu