Business Insider has an interesting article about the low inflation and the missed predictions of hyperinflation and also mentions some possible causes
In a recent post, Hale Stewart posits four ideas:
- Slack demand from China.
- The US oil boom (abundance produces the opposite of inflation).
- Slow growth (especially in Europe).
- The end of the commodity boom.
- Ongoing reduction of high household debt.
We think this overlooks the main reason, which is that there is plenty of slack in the economy and credit demand is tepid, due to the ongoing deleveraging process. When people are paying off debts, they tend to borrow and spend less, which reduces demand, creates slack in the economy, and then there is little reason for business to invest a lot in new capacity. Why should they build new plant, if they can't keep current capacity fully occupied?
So the deleveraging has increased private sector savings and decreased private sector investment, moving the private sector into a huge financial surplus (S-I). So much so, that to equate Savings and Investment, rates have to be steeply negative.
The corrolary was, of course, that the public sector (G-T) moved into steep deficit, but this was necessary to keep the economy from spiralling down like in the 1930s.