Feature Article: Is 'immaculate disinflation' likely?

The article explores the concept of "immaculate disinflation," where inflation returns to target without a significant increase in unemployment. While the Federal Reserve and European Central Bank believe this is possible, the Bank of England predicts a rise in unemployment alongside inflation. However, the article argues that the Bank of England's view is overly pessimistic and that UK inflation will likely return to target without a major increase in unemployment. Factors influencing pay growth and inflation expectations in the UK, US, and eurozone are also discussed. The article concludes that disinflation in the UK is likely to be less severe than predicted by the Bank of England, unless there are adverse supply shocks. The decline in the labor share of GDP and the rise in profit share in the US and eurozone since 2019 is also examined, suggesting that a similar situation could occur in the UK. The article suggests that a sustained return of inflation to target and consistent pay growth is possible in the UK without a significant rise in unemployment. [Extracted from the article]