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The inflation crisis is not over

By Mario I. Blejer and Piroska Nagy Mohácsi

4 min read

informed Summary

  1. After over a year of aggressive monetary tightening, inflation is starting to come down around the world. But the global economy is not out of the woods yet, Mario Bleijer and Piroska Nagy Mohacsi write in PS.

BUENOS AIRES – After more than a year of aggressive monetary tightening, inflation in the United States and around the world is finally trending down. Cautious celebration is in order: monetary policy can be effective, and central banks, after abandoning the fiction of “transitory” inflation, have retained enough credibility to respond effectively.

Contrary to the projections of standard macroeconomic models, and despite the US Federal Reserve raising its policy rate to a 22-year high, the ongoing disinflationary process has not triggered significant output losses or massive unemployment. Apart from some self-inflicted policy mistakes that caused several US banks to fail, disinflation has been relatively painless thus far.

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