MONETARY policies to kick-start growth won't have an impact on inflation as long as central banks remain independent and free from political constraints, an International Monetary Fund study has concluded.
The latest World Economic Outlook from the Washington-based body said inflation had barely budged during the so-called "great recession", despite rising unemployment. It also said inflation was unlikely to spike as recovery kicks in.
But the IMF pointed to Spain and Ireland and warned that while monetary stimulus was unlikely to cause strong inflationary pressures, that shouldn't give way to complacency.
It continued: "Indeed, the experiences of Spain and Ireland in the 2000s dramatically illustrate that despite low consumer-price inflation, economic imbalances grew, as reflected in rampant inflation of asset prices, including for housing."
The report stated that not only was inflation stable during the recession, but it had also been remarkably steady during the strong economic expansion of the early part of the 2000s.
"An essential element behind the anchoring of inflation expectations is the independence of central banks," said John Simon, lead author of the study.
One chapter in the study compared the divergent experiences of the Bundesbank and US Federal Reserve in the 1970s.
It said that even though both overestimated cyclical unemployment and were keen on maintaining economic growth, the Bundesbank managed to keep inflation in the single digits, while the Fed saw it rise to almost 15pc.
While the Bundesbank had demonstrated its independence of the German government, the Fed created a monetary environment that accommodated the upward pressures on prices from government action, the report states.
"Preserving central bank independence is key to anchoring inflation expectations and, thus, inflation: don't take off the muzzle," the study said.
In a separate chapter also released yesterday, the IMF reviewed low-income countries that saw their economies take off since the 1990s and found that their increase was more sustainable than similar experiences of previous decades.
That is reflected "in lower inflation, more competitive exchange rates and appreciably lower public and external debt accumulation," it said.
Such countries also have a lower regulatory burden, higher education levels and greater political stability, according to the fund.
"Today's dynamic low-income countries' policy achievements are a good sign, but they must still address many challenges," the IMF report concluded.
"Strong growth must be accompanied by broad-based improvements in living standards, health and education and a decline in poverty."