3 faces of low inflation: U.S., Japan and the Euro Area - Essay Example

Three Faces of Inflation: U.S., Japan and the Eurozone I support the arguments raised Contessi and Li over the three faces of inflation in the United States, Japan and the Eurozone. In the past, large economies have experienced inflations, but they have taken different aspects and forms from the ones experienced by the United States, Japan and the Eurozone.The experience examined by Contessi regarding inflation was accurate because they yearly inflation experienced due to personal consumption expenditure lie, for example in the month of April was found to be 1.

98 percent in 2012 before dropping in October and rising back in April 2014. Moreover, for the Eurozone the yearly inflation measured or examined by reputable agencies has been found to record a drop between the period of 2012 and 2014 placing Japan’s inflation risk in 2012 to be negative . However, over the years, inflation has taken a totally different dimension recording a higher rise since the early 90s. According to Contessi and Li, the trends which shape, inflation rates on the positive and negative sides have taken on a different dimension as the trends appears to be quite different and the low inflation rates in the three areas , United States, Japan and the Eurozone both holds different explanation.

A good example is that between the countries, energy and food prices have been behaving differently as some charge extra while some experience reduction of the standard prices. Energy prices in the United States and Japan increased as compared to the Eurozone where a decrease was measured. However, this was not the case of food prices as it was the opposite. Food prices in the United States and Japan decreased while indicating an increase in the Eurozone area. Therefore, the three different directions taken by the three regions only suggest that the changes were caused based on the domestic conditions as compared to outside conditions (Laxton, Igor & Charles 29).

I also believe that the difference in inflation rates between the three countries is as a result of the slow increase in prices, which positively affects purchasing parity of customers and increases the actual costs of repaying debt incurred both publicly and privately. It is also true that there are important lessons to be learned for past occurances or happenings because whenever there is a speculation of price reductions in the markets, the speculations will be difficult to reverse as most individuals trading in the market will feel deceived when prices of commodities are not reduced for them in the market.

The relevance for current and future policy imposed on the three faces of low inflation in the United States, Japan and Euro area is that it allow the countries to produce the plausible dynamics and sensible forecasting necessary for driving their countries into inflation challenges or problems again. Works CitedContessi, Silvio, and Li Li - Federal Reserve Bank of St. Louis. "Three Faces of Low Inflation: U.S., Japan and the Euro Area." Three Faces of Low Inflation: U.S., Japan and the Euro Area. Web. 1 Dec. 2014. .

Laxton, Jared, Igor Ermolaev, and Charles Freedman. A Small Quarterly Multi-Country Projection Model. Washington: International Monetary Fund, 2008. Internet resource.World Economic Outlook, October 2007: Globalization and Inequality. Washington: International Monetary Fund, 2007. Internet resource.