By Paul Vieira 

OTTAWA — Canada's annual inflation rate accelerated in August to hit a four-month high, with gasoline and shelter costs lifting prices.

The all-items consumer-price index in August rose 1.4% from a year earlier, Statistics Canada said Friday, following a 1.2% advance in the previous month. The August rise was short of market expectations for a 1.5% advance, according to economists at Royal Bank of Canada.

On a month-over-month basis, CPI rose 0.1%.

Headline inflation remains below the Bank of Canada's preferred target of 2%. The central bank said in its most-recent decision, in which it raised the benchmark rate a quarter-percentage point to 1% on Sept. 6, that price pressures are evolving as expected, with the impact of temporary price shocks dissipating and stronger growth leading to the elimination of unused labor and production capacity.

Meanwhile, the average annual rate of core inflation, based on three gauges used by the Bank of Canada, rose to a six-month high in August. The three measures of core inflation, which aim to get a better read on underlying price pressures in the economy, ranged from 1.4% to 1.7%. Two of those measures accelerated from the previous month.

Central banks in the developed world are grappling on what to do with low inflation, even though data show growth has picked up across the board. Federal Reserve Chairwoman Janet Yellen said at a press conference this week that the central bank needs to determine whether the factors that have kept a lid on price pressures "are likely to prove persistent." The Fed left its policy rate unchanged and signaled another rate increase before the end of the year but indicated it would monitor developments on the inflation front.

A pickup in inflation can have positive effects on an economy. It might prompt consumers to buy goods and services before prices head even higher. Further, it provides flexibility to firms to offer wage increases to employees, thereby giving consumers more income to spend.

The main elements pushing the annual inflation rate upward were the price of gasoline, up 486%, and the homeowners' replacement cost, up 4.2%. The latter represents the price a homeowner has to pay to maintain a residence at its current market value. Food costs increased 0.9%.

Offsetting the price increases in August was a 8.9% one-year decline in the price of electricity. Electricity prices have declined on an annual basis in every month in 2017, largely on policy measures in Canada's most populous province, Ontario, to lower households' cost to keep the lights on.

Overall, the Canadian data agency said the cost of goods climbed 0.4% from a year ago, while prices for services — such as haircuts, accounting and legal advice — increased 2.2%.

On a seasonally adjusted basis, Canada's CPI rose 0.2% in August from the previous month.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

September 22, 2017 09:08 ET (13:08 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

    By Paul Vieira 
 

OTTAWA–Canadian retail sales rose in July on the strength of activity at new-car dealerships and grocery stores.

The value of retail sales in July rose 0.4% on a seasonally-adjusted basis to 49.13 billion Canadian dollars ($39.82 billion), Statistics Canada said Friday. Market expectations were for a 0.2% gain, according to economists at Royal Bank of Canada.

Sales, however, declined 0.2% in volume terms, or when the effects of price changes are removed. Analysts look at volumes to get a more accurate reading on economic activity.

On a year-over-year basis, nominal retail sales rose 7.8%.

 Write to Paul Vieira at paul.vieira@wsj.com 
 

(END) Dow Jones Newswires

September 22, 2017 08:45 ET (12:45 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

    By Paul Vieira 
 

OTTAWA–Canada's annual inflation rate accelerated in August to hit a four-month high, with gasoline and shelter costs lifting prices higher.

The all-items consumer-price index in August rose 1.4% from a year earlier, Statistics Canada said Friday, following a 1.2% advance in the previous month. The August rise was short of market expectations for a 1.5% advance, according to economists at Royal Bank of Canada.

On a month-over-month basis, CPI rose 0.1%.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

September 22, 2017 08:45 ET (12:45 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

By Brian Blackstone 

ZURICH — Federal Reserve Bank of San Francisco President John Williams on Friday said he expects the Fed to continue raising interest rates gradually, and that this could include another increase by the end of this year.

In a briefing with reporters in Zurich, where Mr. Williams was attending a conference held by the Swiss central bank, he said inflation in the U.S. should rise toward the Fed's 2% target over the next two years. U.S. inflation has undershot the Fed's target recently with its preferred annual gauge excluding volatile food and energy categories at 1.4% in July.

"My own view is that it has been not that baffling," Mr. Williams said, referring to low inflation. He noted that prices in some sectors such as health care and cellular services have been hit by downward movements, and that prices typically reflecting developments in the economy have been rising.

"With a strong economy, history teaches us that inflation tends to move up," he said.

Mr. Williams comments came two days after the Fed kept its key policy rate unchanged and said it would begin shrinking its portfolio of bonds next month.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

September 22, 2017 07:55 ET (11:55 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

"The law is the law, but it's just so hard. Those kids were brought over here illegally," said Ms. Thompson of Sun City, Ariz., adding that she doesn't think it's fair to just send them away, "It is so sensitive. My heart goes out to them."

She said the president was right to put the problem in congress's lap. "The House and Senate need to figure it out. The president has passed it to them," she said.

And some even thought he should deal with Democrats.

"I have no love whatsoever for Nancy Pelosi," said Mr. Lee of North Carolina, but the president's meetings with top Democrats were at least an indication that members of Congress and the White House might be able to work together. "Until they get on the same page, it's going to be same thing, day in and day out," he said.

Supporters of Secretary Clinton were angered at the rollback of DACA.

Ms. Collins of Pinellas County said Mr. Trump's decision to end the program protecting Dreamers is consistent with other measures he has taken that she considers anti-immigrant. But she said his actions have prodded some Republicans to defend Dreamers with a passion that has surprised her. "Maybe we'll get some solid legislative protection" for Dreamers, Ms. Collins said. "I'm really curious to see how it plays out."

Dan Frosch and Jim Carlton contributed to this article.

Write to Valerie Bauerlein at valerie.bauerlein@wsj.com, Arian Campo-Flores at arian.campo-flores@wsj.com and Quint Forgey at quint.forgey@dowjones.com

(END) Dow Jones Newswires

September 22, 2017 07:14 ET (11:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

By Valerie Bauerlein, Arian Campo-Flores and Quint Forgey 

As President Donald Trump approaches his 10th month in the White House, The Wall Street Journal revisited voters in six counties representing the economic underpinnings of his support. In each county, the Journal spoke to supporters, converts, abstainers and opponents to see how their economic situation is changing, and whether their expectations are being met.

Supporters of President Donald Trump generally approve of his overall performance on what they see as core issues such as jobs and taxes, and they blame Republicans in Congress for failing to support the White House agenda.

"I think he's doing great," said Emory Terensky, 66 years old, a former steelworker in Monessen, Pa. Similarly, Patti Thompson, who lives in the Phoenix-area retirement community of Sun City, said her support of the president hasn't wavered, though she continues to be frustrated that "we can't get Congress and Trump on the same page." She puts the fault for that on congressional Republican leaders.

On a few issues, such as tensions with North Korea and clashes with white supremacists in the U.S., Mr. Trump received a slightly lower rating. "I'm very concerned about the North Koreans," said John Golomb, 65, a former steelworker, in Monessen, Pa. "Is Donald Trump talk, or is he action? That's the $64,000 question."

Robert Lee, the 62-year-old owner of Rockingham Guns & Ammo in Richmond County, N.C., gives the president an overall grade of "B-minus, at best." He is holding out hope that Mr. Trump will begin successfully working with Congress to get his agenda passed. "He is more intent on fighting," Mr. Lee said. "You can't fight all the time. You've got to step back away from it, take a look at the broader picture of what's taking place and do something about it."

Trump opponents, for the most part, remain angry, and, in some cases, disheartened, with his handling of several key issues over the past few months. Trish Collins, a 40-year-old human resources manager in Pinellas County, Fla., said she feels exhausted by the "roller coaster" of Mr. Trump's presidency.

Rachel Kalenberg, 35, who voted for Gary Johnson, the Libertarian presidential candidate, said she hadn't yet seen evidence of an economic boom in energy-rich Gillette, Wyo, where she owns a pizza shop. But she acknowledged that many people here still believe Mr. Trump's support of the coal industry could ultimately mean more jobs and other good things. "I think Gillette is very hopeful, and we have seen a little bit of growth," she said. "Maybe it's not enough."

Among Trump supporters, views were mixed on his response to the Confederate statue protests in Charlottesville, Va., which descended into a fatal confrontation. Some, including Mr. Lee in Richmond County, N.C., believe that Mr. Trump created unnecessary problems by blaming white nationalists for violent confrontations with counterprotesters in an Aug. 14 prepared speech, then saying there was "blame on both sides" in a news conference the next day at Trump Tower in New York.

"He added a little bit more to it than should've been added and that drove a wedge," Mr. Lee said. "If you keep on tossing something into the wind, it's going to blow back on you, and it did."

But others, such as Earl Cassorla, 61, agreed with Mr. Trump's stance, and blamed the media for not reporting his remarks accurately. "The president denounced white supremacists and neo-Nazis," said Mr. Cassorla, co-owner of a fireworks shop in Battle Mountain, Nev. "The president said there were good people on both sides of the statue protest. The media responded that 'No, there are no good Nazis.' Fake news."

Mr. Cassorla also agreed with Mr. Trump's assertions in various tweets that removal of Confederate statues is wrong. In the case of Confederate Gen. Robert E. Lee, whose statue in Charlottesville was at the center of the Aug. 12 protest, Mr. Cassorla said the Southern war commander wasn't the racist he has been portrayed to be.

"People were protesting the removal of a statue of Robert E. Lee, who fought for the rights of his state, despite his desire for the country to remain undivided," he said. "Some opposing the removal of Lee's statue were a fringe group of white supremacists. Additionally, some protesting were just people who simply opposed the removal of a historical statue."

Jocelyn Golomb, a 20-year-old Monessen, Pa., store clerk, who voted for Hillary Clinton in November, said she has always hated Mr. Trump. But her contempt for the president reached new heights following his response to the violence in Charlottesville.

"He kind of didn't really have anything to say until after he was pushed to say something, and that wasn't right," she said. "I don't think he'll ever have my support. Ever."

Ms. Collins in Pinellas County, Fla., who voted for Mrs. Clinton, thinks Mr. Trump's handling of the Charlottesville violence was abysmal. "If I had to guess what is the worst way to respond to this, he nearly hit it, " she said. "It was terrifying to see that." At the same time, "this is not a surprise," she said. "He's been saying racist things from the beginning of his campaign."

Some Trump supporters, such as Curtis Chambers, a 54-year-old financial adviser, in Pinellas County, praised the way the president has handled the North Korea problem. "It is the question no one seems to have an answer for," Mr. Chambers said.

"I think the Obama period was a period of appeasement," Mr. Chambers said. "The Trump approach is different. It will be more confrontational, highlighted by his rhetoric. I feel like he's being strong with North Korea. … I wish there was a better answer, but at least he's standing up to [ Kim Jong Un]."

"It's a tough situation," said Steve Lang, a 54-year-old contingency planner in Pinellas County. He backs the way the president is working with allies such as Japan to try to contain the threat. "I don't think the American people want us to go to war with North Korea."

But Mr. Golomb, the former steelworker in Monessen, Pa., who feels more "cheated" than ever after voting for Mr. Trump in November 2016, fears a growing threat from Pyongyang that he believes is exacerbated by Mr. Trump's bluster on social media.

"I'm very concerned about the North Koreans," he said. "Is Donald Trump talk, or is he action? That's the $64,000 question."

To Ms. Collins, the Clinton voter, Mr. Trump's handling of hostilities with North Korea has been unsettling. "He and Kim Jong Un are very similar in what they say to each other, and it's terrifying to see our president saber-rattling," she said. "I can't see how his approach is making things better." Moreover, she said, Mr. Trump is alienating key allies such as China that could help defuse the situation.

The president's August speech on Afghanistan, in which he backed a continued commitment there despite a campaign pledge to quickly pull out, earned mixed reviews from his supporters.

"I don't think putting more troops on the ground in Afghanistan is the answer," said Samme Engelson, 40, owner of an embroidery shop in Battle Mountain, Nev., who voted for the president. "I worry about the counsel the president is getting as far as this 'war' is concerned. We have been there so long."

But Mr. Lang, who also backed the president, said the president's change of heart was a positive step. "He sounded like he listened to his generals," he said.

John Golomb, the former steelworker from Monessen, Pa., who early into Mr. Trump's presidency began to regret his Trump vote, was particularly worried about the shift in Afghanistan which he hopes "doesn't turn into another Vietnam."

Responses to Hurricanes Harvey and Irma split along partisan lines, even in Florida, where Irma did the most damage.

Mr. Chambers, a Trump supporter in Pinellas County, thinks Mr. Trump performed well in the wake of the recent hurricanes.

"He went there right away," Mr. Chambers said. "That kind of hands-on leadership, and showing up at the front where the trouble is, is a morale booster to everybody."

But Ms. Collins, the Clinton supporter from Pinellas County, faulted Mr. Trump's response.

"It seemed pretty obvious on his first visit [to Texas] that he was there just to promote himself," she said. She credited the Federal Emergency Management Agency's mobilization of resources, but said "this is another example of the career government staffers around him doing the best they can."

Outside the hurricane zone, reactions were similarly divided.

"The president has behaved in a most compassionate manner related to the victims of this terrible storm," said Mr. Cassorla of Nevada.

But Ms. Golomb of Monessen, Pa., viewed the president's trip to Corpus Christi, Texas, in late August as nothing more than a glorified photo opportunity. "He wasn't talking about, 'Oh, we have a natural disaster, '" she said. "He was talking about, 'What a huge crowd.'"

The president's moves on DACA won praise from supporters for his initial move to toss the topic into Congress's lap, but became more divisive when he began negotiating directly with Democrats. The suggestion to press for a continuance of such protections for young immigrants is also in line with a majority of Americans, according to a Wall Street Journal/NBC News poll.

Ms. Engelson, of Battle Mountain, Nev., expressed concern about the president's handling of DACA.

"I originally thought that the president did the right thing in canceling DACA in six months," she said. "Let Congress do their job. Now I am a bit worried that he is going to sacrifice immigration law to advance other items in his agenda, such as repealing Obamacare and tax reform. If that happens, I think he will have done great damage to his political future and perhaps our country's future."

But some supporters were willing to cut him more slack.

(MORE TO FOLLOW) Dow Jones Newswires

September 22, 2017 07:14 ET (11:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

By Paul Hannon 

The eurozone economy found fresh momentum in September and may have accelerated in the third quarter as a whole, according to surveys of purchasing managers released Friday.

The pickup is the latest positive surprise from an economy that has already outperformed most expectations this year. As it entered 2017, most economists expected to see a slowdown from a disappointing 2016. Instead, they have been forced to raise their projections, and the European Central Bank now thinks the economy will grow more rapidly than it has in a decade.

Data firm IHS Markit on Friday said its composite Purchasing Managers Index for the eurozone — based on survey responses from 5,000 manufacturers and service providers — rose to 56.7 in September from 55.7 in August, reaching its highest level since May.

That was a surprise, with economists surveyed by The Wall Street Journal last week forecasting a drop to 55.6. A reading above 50 signals an increase in activity, while a reading below signals a decline.

The PMIs for July and August had suggested the eurozone economy was slowing very slightly, in line with economists' expectations. But the September jump has raised the average reading for the third quarter. Chris Williamson, IHS Markit's chief economist, said that points to quarter-to-quarter growth of 0.7%, up from 0.6% in the three months to June.

"The eurozone economy ended the summer with a burst of activity, with the PMI signaling renewed impetus to already-impressive rates of growth of output, order books and employment during September," he said.

However, other economists are more cautious, pointing to economic data for July that pointed to a slowdown. Most see quarter-to-quarter growth remaining at, or coming in just below, the second quarter figure.

"We think that is an overly optimistic steer, particularly given relatively soft industrial production numbers coming from Germany," said Chris Hare, an economist at HSBC. "But, while there is a possibility that the PMIs are overly bullish on growth, they do show businesses continuing to brim with optimism."

The September revival was driven by Germany and France, the eurozone's largest members. France's PMI hit its highest level in 76 months, while its German equivalent was the highest in 77.

Coming into 2017, most economists expected a series of key elections across the eurozone to weigh on household and business sentiment, slowing spending. But as the last of those votes approaches in Germany on Sunday, it is clear political uncertainty hasn't had the impact they feared.

Indeed, some now suggest that the failure of political parties hostile to the euro to make larger gains may have been because of the economic pickup, with unemployment rates continuing to fall. According to the surveys of purchasing managers, businesses hired additional workers at the second fastest pace in a decade, falling just short of March's high.

Across the eurozone, manufacturers led the September charge, with activity growing at the fastest rate in more than six-and-a-half years as exports continued to rise, although there are signs new orders from overseas are starting to slow.

"Today's release confirms our view that, despite some concerns amongst investors, the recent appreciation of the euro is not sufficient to derail the region's economic momentum," said Julien Lafargue, an equities strategist at J.P. Morgan Private Bank.

The eurozone's accelerating growth has reduced the need for ECB stimulus, and the central bank has signaled that it will next month announce plans for phasing out its bond-buying program. The strength of the PMI, which is closely watched by ECB policy makers, may help sway any who doubt that is the right course of action.

However, there are few signs the pickup in growth has transformed the outlook for inflation, which is well below the ECB's target of just under 2%.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

September 22, 2017 07:04 ET (11:04 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

By Mike Bird 

European investors are buying more foreign bonds than ever before, another sign that many fund managers aren't expecting tapering from the European Central Bank to boost local yields anytime soon.

The trend has global implications. Heavy demand from the eurozone puts pressure on yields elsewhere in the world, including the U.S., and lowers borrowing costs there. The eurozone's investors are big spenders: In 2016, local investors bought around $500 billion in foreign, mainly government, bonds, almost enough to cover the entire $584.7 billion U.S. budget deficit.

The most recent numbers, between May and July, show that the eurozone's investors bought EUR160.8 billion ($191.7 billion) in international bonds, the largest sum in any three-month period on record, according to data from the ECB.

ECB stimulus, including negative interest rates and a massive bond-buying program, have pushed down the yields on local government debt to record lows. That has made investors look elsewhere for returns.

Now, robust growth in the eurozone is raising expectations that the ECB will roll back its monetary policy, easing more quickly than once expected. As ECB buying subsides, that should push yields higher.

But eurozone investors don't appear to be buying into the idea that local yields are about to get more attractive.

In June, ECB President Mario Draghi said that "all the signs now point to a strengthening and broadening recovery in the euro area," in a statement that investors interpreted as being the central bank laying the ground for tapering. But that didn't stop eurozone investors from snapping up EUR40.9 billion in foreign bonds in the following month alone.

"The rhetoric is about higher rates and tapering…but the reality is that government bond yields and interest rates in Europe are extremely low and even negative in some places," said Mouhammed Choukeir, chief investment officer at Kleinwort Hambros.

"So you're going to see that continued search for yield overseas."

European government bond yields haven't shifted significantly against their global peers since the ECB began changing its tone on tapering.

That is particularly so in the short-dated government bond market.

German two-year bund yields are now 2.1 percentage points below U.S. two-year Treasury yields, a gap that has widened from 2 percentage points six months ago.

That is partly because the Federal Reserve has already moved on tightening its own monetary policy. On Wednesday, Fed officials kept the door open for a December interest-rate rise at the conclusion of their September meeting. Officials also said that they would begin shrinking the Fed's portfolio of bonds in October.

"There is a good chance the ECB hasn't done any hikes by the end of 2018," said Mike Bell global market strategist at J.P. Morgan Asset Management. "Whilst that gap between very low bond yields in the eurozone and somewhat higher global yields persists, you could well see continued large foreign bond purchases," he added.

All that could mean lower borrowing costs for Americans.

In 2012, the Fed published a research paper estimating that a $100 billion increase in foreign official demand — from institutions like central banks and sovereign-wealth funds — reduces the five-year Treasury yield by 0.4 to 0.6 percentage point in the short-run.

Adding to the attraction of investing abroad for European investors: The cost of hedging their exposure to movements in foreign currencies has fallen this year.

A five-year cross-currency basis swap currently costs a European investor around 0.35 percentage point above interest rates — allowing them to borrow in dollars and hedge their risk — down from a peak of 0.56 percentage point last year.

Still, despite European investors buying their bonds abroad, the eurozone is now registering inflows in the equity market, a trend that some analysts don't see reversing soon. Earnings have picked up in Europe, and compared with U.S. stocks, equities in the region are relatively cheap

"Looking at the growth momentum and the economic reform story, we expect that to continue," said Jordan Rochester, strategist at Nomura.

Write to Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

September 22, 2017 05:44 ET (09:44 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

By Paul Hannon 

The eurozone economy found fresh momentum in September and may have accelerated in the third quarter as a whole, according to surveys of purchasing managers released Friday.

The pickup is the latest positive surprise from an economy that has already outperformed most expectations this year. As it entered 2017, most economists expected to see a slowdown from a disappointing 2016. Instead, they have been forced to raise their projections, and the European Central Bank now thinks the economy will grow more rapidly than it has in a decade.

Data firm IHS Markit on Friday said its composite Purchasing Managers Index for the eurozone — based on survey responses from 5,000 manufacturers and service providers — rose to 56.7 in September from 55.7 in August, reaching its highest level since May.

That was a surprise, with economists surveyed by The Wall Street Journal last week forecasting a drop to 55.6. A reading above 50 signals an increase in activity, while a reading below signals a decline.

The PMIs for July and August had suggested the eurozone economy was slowing very slightly, in line with economists' expectations. But the September jump has raised the average reading for the third quarter. Chris Williamson, IHS Markit's chief economist, said that points to quarter-to-quarter growth of 0.7%, up from 0.6% in the three months to June.

"The eurozone economy ended the summer with a burst of activity, with the PMI signaling renewed impetus to already-impressive rates of growth of output, order books and employment during September," he said.

The September revival was driven by Germany and France, the eurozone's largest members. France's PMI hit its highest level in 76 months, while its German equivalent was the highest in 77.

Across the eurozone, manufacturers led the September charge, with activity growing at the fastest rate in more than six-and-a-half years as exports continued to rise.

"Today's release confirms our view that, despite some concerns amongst investors, the recent appreciation of the euro is not sufficient to derail the region's economic momentum," said Julien Lafargue, an equities strategist at J.P. Morgan Private Bank.

The eurozone's accelerating growth has reduced the need for ECB stimulus, and the central bank has signaled that it will next month announce plans for phasing out its bond-buying program. The strength of the PMI, which is closely watched by ECB policy makers, may help sway any who doubt that is the right course of action.

However, there are few signs the pickup in growth has transformed the outlook for inflation, which is well below the ECB's target of just under 2%.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

September 22, 2017 05:17 ET (09:17 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.

By Paul Hannon 

Globalization is the most likely explanation for surprisingly low rates of inflation, suggesting that central banks should be patient in seeking to meet their targets and avoid providing too much stimulus, a senior official at the Bank for International Settlements said Friday.

The bank's advice comes as the global economy has accelerated this year, while unemployment rates continue to fall across developed economies. Despite that, inflation rates across the Group of 20 largest economies have eased and stand at levels last seen in 2009, when the world was just starting to emerge from the sharp economic downturn that followed the global financial crisis.

Central bankers are puzzled at the breakdown in the economic relationship between activity and prices.

Federal Reserve Chairwoman Janet Yellen Wednesday acknowledged the inflation shortfall had proved more persistent and was more broad-based than officials had anticipated. "I can't say I can easily point to a sufficient set of factors that explain this year why inflation has been as low," she said.

Claudio Borio, who is chief economist at the industry association for central bankers, thinks the BIS has nailed the culprit: Globalization, a process that took off from the 1980s and has seen many large companies spread their activities and associated jobs across an increasing number of countries, creating what are known as "global value chains."

"One would expect the entry of lower-cost producers and of cheaper labor into the global economy to have put persistent downward pressure on inflation, especially in advanced economies and at least until costs converge," he said in a speech.

The BIS has advanced this view with increased confidence over recent years, citing a mounting body of evidence from its own research and that of other economists. Some leading central bankers are now giving it greater credence. In a speech Monday, Bank of England Gov. Mark Carney said globalization has weakened the link between spare capacity in national economies and their inflation rates.

Mr. Borio said the influence of globalization on inflation has implications for central-bank policy.

"To the extent that disinflationary pressures result from forces such as globalization or technology, they should be generally benign: They would reflect favorable supply side developments as opposed to damaging demand weakness," he said. "At a minimum, this suggests lengthening the horizon over which it would be desirable to bring inflation back toward target."

In the current context, that would mean providing less stimulus to the economy than many central banks are now offering.

Mr. Borio offered another argument for running tighter policies, citing BIS research that suggests central banks have a much larger influence on real, long-term interest rates than they like to admit. Rather than being determined by the balance between savings and investment, Mr. Borio said an examination of the record from 19 countries going back to the 1870s suggests real interest rates have fallen over recent decades because central banks have kept their policy rates low. Central banks say there is a "natural" rate of interest determined by the savings and investment balance that they simply try to follow.

"We may need to adjust monetary policy frameworks accordingly," he said. "Here, I highlighted the desirability of greater tolerance for deviations of inflation from point targets while putting more weight on financial stability."

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

September 22, 2017 05:14 ET (09:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.