Report
How can core inflation be brought down?
There are three ways of bringing down core inflation: Increasing productivity gains; Driving up unemployment to slow down wages; Lowering profit margins. Increased productivity gains or lower profit margins reduce inflation without increasing unemployment. We look at the dynamics of inflation excluding energy and food in the United States, the euro zone and the United Kingdom, and examine the nature of the strategy used to bring down inflation. In the United States, the fall in core inflation is due to productivity gains and the slowdown in wages. In the euro zone, it is due to the decline in corporate profit margins. In the United Kingdom, it is due to the slowdown in wages and the decline in corporate profit margins. It is therefore mainly the improvement in supply that is behind the fall in inflation in the United States and the deterioration in demand in the euro zone and the United Kingdom.
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Natixis
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