And this implies that the output gap will gradually narrow. Although it’s true that inflation rates have been lower than the Governing Council’s definition of price stability for quite some time, I see no danger of slipping into a deflationary downward spiral of declining prices, declining wages and declining output.
And this view is shared by the overwhelming majority of experts: the latest Survey of Professional Forecasters showed that only 2% of respondents expect an inflation rate of less than zero in five years. There is a clear majority that sees a gradual increase in the inflation rate up to levels that are broadly consistent with the Governing Council’s definition of price stability.