After the 2007-08 global financial crisis, the world’s major central banks spent more than ten years prioritising deflationary pressures over inflation, prompting calls to revisit their price‑stability goals.
What shift occurred in central‑bank policy after the 2007-08 crisis?
Following the crisis, central banks largely set aside explicit inflation targets and directed policy tools toward preventing falling prices and reviving growth.
Why did policymakers focus on deflation rather than inflation?
The post‑crisis environment featured weak demand, low commodity prices and a risk of prolonged price declines, leading officials to view deflation as the more immediate threat.
How did academic thinking influence this approach?
Economists emphasized the concept of secular stagnation – a long‑term slowdown in economic activity – which reinforced the view that monetary policy should combat weak demand rather than curb rising prices.
What are the arguments for revisiting inflation objectives now?
Analysts argue that prolonged neglect of inflation targets can erode credibility, distort expectations and limit the ability to respond to future price spikes.
What could a new inflation framework look like?
Proposals include setting clearer numeric targets, incorporating flexible ranges and linking policy decisions more directly to observable price trends.