Graphic by Krieg Barrie
![](https://unherd.com/wp-content/uploads/2019/09/Peter-F-100x100.jpg)
Last week I wrote about the new normal of ultra-low interest rates – as favoured by central banks across the western world. In particular, I asked how they’d got away with such a loose (one might say louche) monetary policy for so long.
Before the financial crash, excessively low interest rates, quantitive easing and the like would be punished with inflation. In the earlier part of this decade, the op-ed pages were full of rightwing economic pundits saying this would happen sure as clockwork (if we didn’t mend our ways in time). Yet, like their leftwing brethren (who warned that austerity would cause mass unemployment), they were proved wrong.
The post hoc rationalisation was that the financial crisis was much worse than previously realised – and that the shock of such a deep recession must have suppressed demand. This excuse is wearing thin. We’re now ten years on from the start of the crisis – and several years into the recovery (the precise number depending on location). So where’s that inflation then?
It’s a mystery that Nouriel Roubini tries to fathom in a piece for Project Syndicate:
“Since the summer of 2016, the global economy has been in a period of moderate expansion, with the growth rate accelerating gradually. What has not picked up, at least in the advanced economies, is inflation. The question is why.”
If we can’t blame lack of demand, then we ought to look on the supply-side of the economy:
“One possible explanation for the mysterious combination of stronger growth and low inflation is that, in addition to stronger aggregate demand, developed economies have been experiencing positive supply shocks.”
A ‘positive supply shock’ is basically a glut – an expected surge in production sufficient to soak up demand at the same (or lower) prices.
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