Inflation Mechanisms, Expectations and Monetary Policy - Overview

8 Pages Posted: 2 Dec 2016

See all articles by Christian Upper

Christian Upper

Bank for International Settlements (BIS)

Date Written: November 1, 2016


Inflation has been off-target for some time in many economies, both advanced and emerging (Graph 1). Whereas advanced economies (AEs) have mostly seen inflation below target, the experience among emerging market economies (EMEs) has been mixed. Inflation has been below target in several EMEs in Asia and central and eastern Europe, but above target in some Latin American economies as well as in Russia, South Africa and Turkey.

Headline inflation and inflation targets1 In per cent Graph 1

AE = United Arab Emirates; AR = Argentina; BR = Brazil; CL = Chile; CN = China; CO = Colombia; HK = Hong Kong SAR; ID = Indonesia; IN = India; KR = Korea; MX = Mexico; MY = Malaysia; PE = Peru; PH = Philippines; PL = Poland; RU = Russia; SA = Saudi Arabia; SG = Singapore; TH = Thailand; TR = Turkey; ZA = South Africa. 1 Annual inflation rate as of June 2016; for Indonesia, Korea, Peru, Thailand and Turkey, July 2016. For Argentina, shown on the right-hand scale, the inflation rate is based on the consumer price index for the City of Buenos Aires. 2 For countries following an inflation targeting strategy. Sources: Datastream; national data; BIS calculations.

This chapter reviews the recent experience of EMEs, drawing heavily on the BIS background notes and central bank contributions prepared for a meeting of EME Deputy Governors held in Basel on 28–29 January 2016 and collected in this volume. The first section discusses two major changes in international prices that influenced inflation in recent years: the drop in commodity prices and the appreciation of the US dollar. The second section takes a step back and looks at the inflation process, ie the dynamics of inflation and its response to shocks. The third section considers inflation expectations and the fourth draws conclusions for policy. Boxes 1 and 2 discuss the measurement of inflation and of inflation expectations, respectively.

Full Publication: Inflation Mechanisms, Expectations and Monetary Policy

Keywords: inflation, emerging markets, exchange rate pass-through, Phillips Curve

JEL Classification: E31, E52, F62

Suggested Citation

Upper, Christian, Inflation Mechanisms, Expectations and Monetary Policy - Overview (November 1, 2016). BIS Paper No. 89a, Available at SSRN:

Christian Upper (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

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