Stanley Fischer, the Federal Reserve's vice-chairman, struck an optimistic note about US inflation on Saturday, telling his fellow central bankers that there was good reason to expect price growth to head back to target.
But the meetings in Jackson Hole, Wyoming, exposed just how much uncertainty there is among central bankers over the perplexing dynamics of inflation — and the reasons why it has remained low in so many western economies.
Papers presented at the symposium hosted by the Kansas City Fed questioned central bankers' focus on simple measures of spare capacity as a driver of inflation, threw further light on the way currency movements affected price growth and raised doubts over the assumption that companies facing financial strains would cut prices to attract customers.
Western central banks are struggling to shift inflation back towards their targets even as their economies recover.
Many of the questions surrounding inflation are the focus of the debate in the US, where the next meeting of the Fed seems likely to focus heavily on inflation uncertainties. While the Fed is closing in on one leg of its twin mandate — helping foster maximum employment — inflation has doggedly lagged behind its expectations.
Analysis presented by Jon Faust at Johns Hopkins University and Eric Leeper of Indiana University argued central bankers needed to move beyond traditional ways of examining inflation via simple rules and cyclical measures and incorporate the larger, disruptive forces that could shape prices.
Central bankers often looked too closely at measures of slack in the economy and could end up missing the big picture, the paper suggested. The academics argued that factors such as changes in the labour share of income, demographics and fiscal policy needed to be brought into play.
A separate paper from Simon Gilchrist of Boston University and Egon Zakrajsek of the Fed's Board of Governors showed that companies in a financial crisis behaved differently from traditional assumptions, pushing up their prices instead of cutting prices to hold on to their customers.
Gita Gopinath of Harvard University questioned in a further paper the conventional view of how exchange rate fluctuations fed through to price movements. Given the bulk of international trade was invoiced in dollars, the research argued that inflation in the US was more insulated from exchange rate shocks than many other countries.
The latter is a significant conclusion given the current debate about the disinflationary impact of the high dollar, and fears that the currency could rise higher and drag on import prices if the Fed raises rates.
In a speech about inflation, Mr Fischer acknowledged that policymakers had been taken aback by the low price growth in the US, saying that given the erosion of the amount of spare capacity it was surprising that core inflation was still running at just 1.2 per cent a year — well below the Fed's target.
He spoke after market-derived inflation expectations had been sliding in recent weeks. The spectre of a sharp slowdown in China's economy and further declines in commodity prices had raised further risks to the inflation outlook, prompting some policymakers to argue that the Fed should be considering further monetary easing rather than an interest rate increase.
With the Fed's favoured measure of core inflation running so low and falling commodity prices set to curb price growth further, a move on rates next month remained far from certain.
"You haven't had inflation for seven years and the model is not working very well in predicting the economy," said Kenneth Rogoff of Harvard University. "How confident can you be that it is around the corner?"
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