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Economic Viewpoint

When weak economic growth rhymes with high inflation

May 26, 2016
François Dupuis, Vice-President and Chief Economist • Hendrix Vachon, Senior Economist

In the last few years, questions about the risk of deflation in several countries—including the United States and the euro zone—often popped up. The drop in commodity prices has undoubtedly fuelled things, but the underlying problem in these countries has been the difficulty in generating sufficient economic growth. Sustained economic growth, coupled with a low unemployment rate, usually coincide with a higher inflation rate. That said, some countries continue to grapple with high inflation rates despite weak economic growth. This Economic Viewpoint presents and analyzes some exceptional cases and revisits various inflation-generating mechanisms. This makes us question whether these mechanisms could potentially push up inflation in advanced countries, or inspire new monetary policy tools, such as direct money creation (helicopter money).

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