WASHINGTON—The world’s top central bankers predicted inflation won’t stay low for much longer as they signaled they will push ahead with plans to gradually tighten monetary policy.
Federal Reserve Chair Janet Yellen said on Sunday that her “best guess” is consumer prices will soon accelerate after a period of surprising softness, a forecast echoed by European Central Bank President Mario Draghi and Bank of England Governor Mark Carney.
The inflation wager capped the International Monetary Fund’s annual meetings at which policy makers cheered the healthiest, most synchronized global economic expansion in a decade, while keeping a wary eye on the weakness of inflation and exuberance of asset prices.
“The fear that dominated most of the annual IMF/World Bank meetings since the financial crisis a decade ago seems to have evaporated,” said Joachim Fels, a global economic adviser at Pacific Investment Management Co. He also warned of an “eerie sense of security.”
The European Central Bank also expects a pickup in inflation even though wages have remained weak during the current economic recovery, its vice president, Vitor Constancio, said Sunday.
“The apparent disconnect between strong economic activity, on the one hand, and low inflation and wages on the other is one of the stand-out characteristics of the ongoing recovery”•lmost everywhere, I must say,” Constancio said at a Group of Thirty international banking seminar.
But Constancio expressed “confidence” that as Eurozone economies reached growth potential, this “will lead inflation to return to our medium-term objective.”
“Yet this return remains conditional on a very substantial degree of continued monetary accommodation,” he added.
The ECB is to decide this month whether to extend its current bond-buying stimulus into 2018. Inflation in the Eurozone undershot analyst expectations in September, holding steady at 1.5 percent, according to Eurostat.
Meanwhile, Bank of Japan Governor Haruhiko Kuroda told the same event that Japan would pursue its own current stimulus program, but expected inflation would return.
“Modest wage increases and weak inflation relative to the increased momentum of the economy and tightening of the labor market can be explained as a problem,” he said.
One explanation was that, after a long period of low growth, companies were uncertain of future revenues and thus reluctant to raise wages, he said”•adding firms would soon face pressure to raise wages, and some in the Japanese services sector were already doing so.
Year-on-year, Japan’s core consumer price index gained 0.7 percent in August.
“Achieving the two percent target is still a long way off and the Bank of Japan will persistently pursue aggressive monetary easing with a view to achieving the price stability target at the earliest possible time,” said Kuroda.
Though it is also experiencing weak inflation, the United States stands out among advanced economies by moving to raise benchmark interest rates and starting to unwind an asset-purchasing stimulus program.
When volatile food and fuel prices are discounted, the US Federal Reserve’s preferred measure of inflation”•the Personal Consumption Expenditures price index”•has undershot the Fed’s two percent target for more than five years.