Wednesday, August 22, 2012

Global Inflation Shows No Decoupling

Ed Yardeni offers the following chart on global inflation:
While the two lines begin to converge around the turn of the millennium, the most striking aspect is the correlation since the global crisis began in 2007. Although emerging economies are experiencing consistently higher inflation than advanced economies, the size of that difference has remained fairly constant despite dramatic moves in both directions. What does this imply for global trade and decoupling?

Are the major economies within each group becoming increasingly reliant on each other to support demand?
Are fiscal and monetary policies that alter inflation rates being transferred globally rather than contained? If so, what does that imply about the need for global coordination?
What is the likelihood of growth significantly decoupling when inflation is this tightly correlated?

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