IMF Says Inflation Likely to Remain Stable – What About the Eurozone?
by Dirk Ehnts, Econoblog101
The latest IMF Survey has this to say:
- Inflation barely budged during Great Recession despite rising unemployment
- Independent central banks reduce risk that policies to stimulate economy will ignite prices
- Inflation expectations anchored, but asset prices still vulnerable to increase
… and shows us this graph:
This graph seems a bit strange – where is the euro zone inflation rate? Inflation rates are usually calculated for a currency area. which normally is the same as a nation. The euro, of course, is not like this. So, why not show the euro zone inflation rate? Here it is:
There seems to be a problem of disinflation, not inflation. The inflation rate is falling, and it approaches below 2% quite quickly, which is where according to the ECB rules it should be, at least somewhere in the medium term (whatever that means). So, the question is: can you stop it falling? Monetary policy doesn’t seem to work anymore, but I think that the ECB of Draghi has saved that last shot – lowering the interest rate from 0.75% to 0.00% – for the moment when the inflation rate crashes through 2%, 1%, 0.5%, … well, whenever the media will start to shout “DEFLATION!”.
After that, central banks and academia should finally accept that this is not about confidence but about balance sheets. Balance sheets need repair, not confidence. To repair balance sheets, there must be incomes. So, without focussing on incomes no balance sheet will improve. The periphery depression shows that.
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