THE WORLD IS WAITING FOR INFLATION TO KICK IN / THE WALL STREET JOURNAL

The World Is Waiting for Inflation to Kick In

If economic growth keeps accelerating, it could finally push inflation higher

By Ben Eisen
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Investors wondering whether inflation will pick up soon should keep an eye on the outlook for global growth.

The economy, sluggish in the years after the financial crisis, has accelerated this year. The International Monetary Fund projected global growth of 3.6% this year and 3.7% in 2018. The latest projections, released last week, raised estimates by 0.1 percentage point from the July forecast and would be faster than 2016’s 3.2% rate.

The lack of growth in many parts of the world since the financial crisis hampered the demand that tends to push up prices. In turn, inflation has remained low across developed economies, failing to pick up as much as central banks would like. But now, as noted in the Journal’s Morning MoneyBeat newsletter Monday, some policy makers are citing growing demand around the world as one factor that could push up consumer prices.

“Inflation will start to come in that environment,” Bank of England Gov. Mark Carney said in a television interview Friday. “It is not surprising given the big shock we have all been through and the coordinated opening up of output gaps that it is taking a little longer, but we are moving in the right direction.”

Some economists say that the spread of globalization in recent decades means inflation is determined at a more global level than it used to be. For example, companies can go further afield in search of cheap labor, giving them more options to make their products without paying higher wages. In this environment, it would take a pick-up in growth across the world to cause a sustained lift in prices.

Low inflation has confounded economists and stymied efforts to unwind years of easy-money central bank policies. The Federal Reserve targets a 2% annual inflation rate but prices have only briefly risen by that much or more.

An index of U.S. consumer prices, excluding volatile food and energy categories, rose just 0.1% in September from a month earlier and 1.7% from a year earlier, data showed Friday. Gasoline prices jumped after recent hurricanes but much of that is expected to be temporary.

Expectations for future inflation are also flagging. Consumers in a University of Michigan sentiment survey said they expect inflation of 2.3% annually over the next year, according to data released Friday, the lowest level of the year and down from 2.7% in September’s reading.

Over the weekend, Fed chairwoman Janet Yellen said the “biggest surprise in the U.S. economy this year has been inflation.” And outside of the U.S., European Central Bank president Mario Draghi warned Friday that inflation remains too low.

But some measures of consumer prices have started to pick up. A gauge of U.S. business prices, the producer-price index for final demand, rose 0.3% in September from a month earlier, topping expectations, data showed last week.

If economic growth keeps accelerating, it could push inflation higher. That would be a welcome occurrence for the many economists and policymakers who have been waiting for it to happen.