Inflation in the Group of 20 largest economies, which account for most of the world’s economic activity, fell to its lowest level in almost eight years during June, deepening a puzzle that confronts central banks as they contemplate the removal of post-crisis stimulus policies.
The Organization for Economic Cooperation and Development Thursday said consumer prices across the G-20 were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7% as the global economy was starting to emerge from the sharp downturn that followed the global financial crisis.
The contrast between then and now highlights the mystery facing central bankers in developed economies as they attempt to raise inflation to their targets, which they have persistently undershot over recent years.
According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. As the economy grows and demand strengthens, that output gap should narrow and prices should rise.
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