Deflation fears likely to ease, says NAB

Deflation fears likely to ease, says NAB

A stabilisation of commodity prices at low levels could be the catalyst for a resurgence of inflation in developed economies, according to NAB's economics division.


The new year could finally put deflation fears within developed economies to bed, according to a new report by NAB Group Economics.

In a note titled 'A turning point for global inflation?', NAB pointed to International Monetary Fund projections that 2015 (and 2014) saw inflation in developed economies at 20-year lows.

"[Inflation] is also low in Australia, even for tradable goods and services despite more than 20 per cent depreciation of the Australian dollar in trade-weighted terms since February 2012," said NAB.

"Some of the disinflationary pressure has stemmed from lower oil prices which are likely to be stimulatory to activity in the medium term," it said.

Going into 2016, much will depend on commodity prices as well as the degree of spare capacity and aggregate demand across the global economy, said the report.

"We expect commodity prices to stabilise at low levels which should produce higher inflation as fuel price falls in particular drop out of the calculations, and associated input costs stop declining," said NAB.

However, any increase in global inflation will be "moderate", said the report.

"The global economy is lacklustre, while high unemployment will continue to suppress wages growth," said NAB.

"Structural factors – rapid technological change, automation and population ageing – may also act to keep inflation low," it said.

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Deflation fears likely to ease, says NAB
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