Why inflation rate has dipped so low during covid19 period?
Answers
There is only one long-term call in the market now: will there be inflation or deflation in the post-Covid-19 world? The majority opinion is deflation because unemployment will be high and demand will be weak, while the supply chain is resilient and will storm back offering plenty of goods to tempt weak demand.
Quantitative Easing doesn’t create inflation. New money gained is balanced by less liquid assets lost in exchange. The new money is encumbered by this process, so isn’t easily squandered on immediate rash purchases. The economy gets liquid money and in exchange the government gets assets. It isn’t printing money, it’s issuing it in return for less liquid assets, further from cash, but still nonetheless wealth.
QE etc. is not petrol for the economy, it’s oil for the engine. That is why years of QE didn’t create the hyperinflation everyone expected when the process was invented to sort out the global financial crisis. QE is no longer “unorthodox monetary policy,”’ it’s a proven way to manage economies.