However, cuts in the price of a certain product can have an impact on average consumer prices during a period of time, in the same way as when the developments in digital technology make some products cheaper. From this perspective, increased imports from China and other Iow-wage countries can have a directly dampening effect on inflation in the short and medium-terms. 14 There are probably reasons why the idea of lowering the inflation target has been put forward mainly in Sweden. Swedish inflation fell to low levels somewhat earlier than inflation in many other countries. Another important piece of the puzzle is that the low inflation is not considered to reflect a particularly poor development of the Swedish economy. It is therefore likely that one begins looking for other explanations for the low inflation. And if one then decides on the explanation that this is largely a matter of structural trends and that an inflation rate that is persistently below 2 per cent is compatible with a reasonable development of the real economy, it appears both possible and logical to lower the target. This is roughly the way I believe the reasoning works. ...but they do not determine inflation This method of reasoning may intuitively appear reasonable, but I think it disregards a couple of important circumstances. Both globalisation and digitisation are underlying structural trends that can have a dampening effect on inflation. But even if this effect may continue over a long time, it is essentially temporary.
I also believe that it may be difficult to raise the target in a situation where inflation undershoots the target significantly, particularly if the central bank has cut the policy rate to the “near zero lower bound”, that is, the level at which may countries are now. Here there is rather a risk that the increase will be perceived as a more or less desperate and in the worst case not particularly credible measure to obtain a little additional help getting out of a difficult situation. Apart from the best time to change the inflation target being in a relatively normal situation, I would also think it would be easier if several central banks did it at the same time. 16  For a definition of secular stagnation and a summary of empirical evidence and policy implications, see Rawdanowicz et al (2014). 17  See, for example, Krugman (2014). 18  See, for example, Hamilton et al (2015) and Rogoff (2015), who say that the world is in the adjustment phase of an unusually large debt cycle, a “debt supercycle”. See also the debate between Bernanke (2015) and Summers (2015). 8  BIS central bankers’ speeches  Financial crisis has affected the central banks’ analysis and working methods I have given some examples of questions that will probably continue to be argued in the international discussion of how inflation-targeting may need to be adapted and modified.