

Source: Federal Reserve, Eurostat

Disco, pet rocks, and inflation are all '70s fads that are more than a bit ridiculous to obsess over today. No offense, of course, to fans of the lyrical stylings of ABBA or low maintenance hobbies.

But no matter how fondly you look back on the '70s, at least one thing we can all agree on is that inflation is dead. Done. Whipped.

You can see that above. Inflation is just 1.6 percent in China, 1.5 percent in the U.S., 1.2 percent in the U.K., and a minuscule 0.3 percent in the Eurozone. Then there's Japan, which is harder to compare since its sales tax hike just bumped up prices, but would only have 1.1 percent inflation, if not for that. And it's probably even lower than that there and everywhere else. That's because, as Jessie Handbury, Tsutomo Watanabe, and David Weinstein show, measured inflation tends to overestimate actual inflation by about 0.6 percentage points. So inflation might really be about 1 percent in all of the world's biggest economies.

Why?

Well, it's the crisis, stupid. Households can't or won't borrow, even though interest rates are zero, because they're still trying to pay down their old debts. That means growth is weak, and price pressure is too. Not only that, but the big central banks are, with a few exceptions, either tightening or thinking about it. The Federal Reserve is just about to wrap up its bond-buying program, and is starting to talk about when it will raise rates. China's central bank is resisting calls for further stimulus, as it tries to slowly deflate their housing bubble. And while the ECB says it's about to begin buying private sector bonds, the details have been disappointing and its balance sheet continues to shrink. As I put it before, Europe seems to be debating whether it should do too little too late or too late too little.

This coordinated monetary tightening has, unsurprisingly, sent inflation down around the world. It's been enough to make markets worry — okay, panic — that policymakers are pushing the global economy down another leg in the crisis. That's premature.

Now, it's true that Europe is stuck in a depression worse than the 1930s, and won't get out anytime soon. But the rest of the world is doing okay-ish. The U.S., a few statistical blips aside, looks like it's still chugging along at somewhere around 2 percent growth. Japan is weathering its big tax hike about as well as can be expected. And China is slowing down, but not dramatically so; it's still growing better than 7 percent a year.

But if inflation does keep falling, it'd be a flashing red light that policymakers need to put their foot back on the gas. That seems more likely than not, since growth is too slow and workers are too weak for there to be any kind of price-wage spiral.

The '70s are over, man.