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Expert group studying the causes of low inflation (LIFT)

Purpose

Since 2012, inflation has been unexpectedly low across much of the developed world, including the euro area. In 2015, the European System of Central Banks (ESCB) set up a network of experts to study the causes of this low inflation and to research the implications for policy. That research, conducted from March 2015 to June 2016, is published here and represents the views of the authors and not necessarily those of the ECB or the ESCB.

Findings

The research finds that the excessive disinflation over the period was primarily down to cyclical factors, principally domestic in the earlier part of the period and global in nature in the latter part, notably the sharp fall in global energy and other commodity prices. The succession of negative shocks constrained headline inflation for a prolonged period, and there were indications of an increase in the persistence of inflation, and a fall in the trend inflation rate.

There is some evidence that these low short-term inflation outturns had begun to have a greater influence on longer-term inflation expectations in 2014-15, although the influence of short-term factors on inflation expectations lessened at longer horizons, implying continued public belief in the ECB’s commitment to its inflation objective.

The research also finds that unconventional measures have been effective in mitigating the downside risks to price stability, curtailing risks of de-anchoring, and expanding aggregate demand.

Publications