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Lowflation: Then and Now

Summary:
The term "lowflation" was initially coined by economists at the IMF in 2014 (see here). It refers to an inflation rate that is persistently low (relative to some target) but positive. Here is what lowflation looks like in the United States: How should we think about lowflation? I've written a bit on the subject here and here. Is the phenomenon unusual? Is it something we should worry about?As it turns out, the phenomenon is not unusual even in recent U.S. monetary history. The following diagram plots the PCE core inflation rate for the United States since 1960. The shaded areas represent "lowflation" episodes--periods in which PCE core inflation is below 2%. The early 1960s was also an era of lowflation. So was the more recent period 1996-2003. The period 2004-2008 pf (slightly

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The term "lowflation" was initially coined by economists at the IMF in 2014 (see here). It refers to an inflation rate that is persistently low (relative to some target) but positive. Here is what lowflation looks like in the United States:
Lowflation: Then and Now

How should we think about lowflation? I've written a bit on the subject here and here. Is the phenomenon unusual? Is it something we should worry about?

As it turns out, the phenomenon is not unusual even in recent U.S. monetary history. The following diagram plots the PCE core inflation rate for the United States since 1960. The shaded areas represent "lowflation" episodes--periods in which PCE core inflation is below 2%.

Lowflation: Then and Now

The early 1960s was also an era of lowflation. So was the more recent period 1996-2003. The period 2004-2008 pf (slightly above 2%) inflation seems more like a recent aberration.

Is lowflation a problem? Perhaps. But if there is, it certainly doesn't seem to show up in the economy's RGDP growth performance. The following figure plots the growth rate of RGDP and RGDP per capita for each of the high and low inflation episodes identified in the early figure.

Lowflation: Then and Now

In this sample period, economic growth in lowflation episodes averages about the same as growth in non-lowflation episodes. What is one to make of this?
David Andolfatto
The views and opinions expressed by me in this blog are my own and should in no way be attributed to the Federal Reserve Bank of St. Louis, or to the Federal Reserve System.

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