Inflation Is Coming Back

After years of rock-bottom interest rates and quantitative easing, inflation is slowly returning to the global economy in the form of higher consumer and wholesale prices. With central banks slowly stepping back, the big question is whether price growth can be sustained for the long haul. Central banks have been fighting deflation since the height of the Great Recession, resulting in highly coordinated policy responses from the likes of the U.S. Federal Reserve, European Central Bank, Bank of Japan and Bank of England. Broadly speaking, these institutions target consumer price growth at around 2% annually. Although a higher inflation rate is costlier in economic terms, it is often a signal of rising domestic demand. It is the job of monetary policy setters to ensure that inflation and the money supply grow at a sustainable pace in support of broader economic goals (i.e., growth).