For more than three decades the world, at least the countries that count, have raised “barriers” against inflation. Those “barriers” became “blinkers” during and following the 2008-09 crisis, stopping policymakers seeing that the greatest danger coming from “behind and from the side” was rapid disinflation/deflation.
Now reality has broken the spell, and we get headlines such as : Risk of Deflation Feeds Global Fears:
Behind the spate of market turmoil lurks a worry that top policy makers thought they’d beaten back a few years ago: the specter of deflation.
A general fall in consumer prices emerged as a big concern after the 2008 financial crisis because it summoned memories of deep and lingering downturns like the Great Depression and two decades of lost growth in Japan. The world’s central banks in recent years have used a variety of easy-money policies to fight its debilitating effects.
Now, fresh signs of slow global economic growth, falling commodities prices, sagging stock markets and declining bond yields suggest the deflation risk hasn’t gone away, particularly in the often-frenetic eyes of investors. These emerging threats come as the Federal Reserve is on track this month to end a bond-buying program that has been one of the main tools in its fight against falling prices.
It is clear that the “world´s central banks” have not used enough of the power available in their arsenal to successfully fight it´s “debilitating effects”. And “these emerging threats” do not come as the Federal Reserve is on track to end QE, but more likely because of it!