Always erudite:
"Core inflation is rising in most economies. This is in some ways surprising, since the output gap in the developed economies remains in the region of 3-4 per cent of GDP on most estimates. Until recently, this large degree of spare capacity was having the expected effect on core inflation, which was dropping at a rate of about 0.5 per cent per annum in the developed world. This gradual downward drift was predicted to continue during 2011 (for example, see this earlier blog on the impact on persistently large output gaps), but in recent months this pattern has been interrupted. The first graph shows the behaviour of core inflation in the 4 largest economies in the last two years. (The data show 6 month annualised rates, except for China which is a 12 month rate.) On this basis, the running rate of core inflation has risen from about 0.5 per cent in the middle of last year to about 1.3 per cent now. Although this is certainly not an emergency, the consistency of the increases across all of the major economies – even Japan – is quite striking."
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