Tag Archives: inflation

The Economist speculates that central bank independence might be on its way out. The article suggests that motives for independence (i.e., Sargent/Wallace or Barro/Gordon type arguments) might be less relevant given the environment of low inflation and interest rates. See also my earlier, related blog post.

Summary: Service prices are rising, while goods prices have steadily fallen. Non-durable goods prices are stabilizing, while durable goods prices are still falling. The decline in durable goods prices is an important economic development. The rust line is service prices.  They are steadily increasing.  No deflation or disinflation here.  Think about rent, medical services, education, and entertainment. The three...

Japanese central bankers are not in an enviable position. The year-over-year growth rate of the country’s core consumer price index was -0.4 percent in May, marking the third consecutive monthly decline—and this after three years of Abenomics.   Brexit certainly hasn’t helped. The yen has strengthened from ¥121 to the dollar in February 2016 to ¥105 in late July. That’s had the effect of reducing import prices, but it has also put downward pressure on inflation. Japan economists on...

Finanz und Wirtschaft, April 30, 2016. PDF. Ökonomenstimme, May 6, 2016. HTML. The winners and losers of the current monetary environment are not that easy to identify. Investors holding long-term, non-indexed debt gain as unexpectedly low inflation shifts wealth from borrowers to lenders. Governments suffer from increased real debt burdens and reduced revenue due to effectively lower capital income tax rates. Policies that succeed in affecting the real exchange rate entail...

On his blog, John Cochrane offers a stripped down model and some intuition for why inflation would rise after an increase in the interest rate. The model features the usual Euler (IS) equation and a Mickey Mouse Phillips curve—inflation is proportional to consumption (or output). The intuition: During the time of high real interest rates — when the nominal rate has risen, but inflation has not yet caught up — consumption must grow faster [the Euler equation, DN]. … Since more consumption...

As widely expected, core personal consumer expenditure (PCE) inflation dropped back slightly in March in the US, while wage increases remained subdued in Q1. We now expect that the Federal Open Market Committee (FOMC) will hike rates only once in 2016, probably in September. Read the full report here In Friday's report on income and consumption, data were also published on the PCE deflator, the price measure targeted by the Fed in gauging inflation. The core PCE price index (excluding...

While we expect the ECB to remain on hold at its next policy meeting on April 21, a number of issues are coming steadily into focus Read the full report here The ECB is facing a complex, albeit not completely negative, macro-financial environment following its impressive policy package announcement on 10 March. Nevertheless, barring some new shock, beyond some fine-tuning measures, the ECB should remain on hold at its next policy meeting on 21 April. Instead, we expect different aspects...

In his blog, John Cochrane registers disagreement with Larry Summers and reiterates his own argument that in a liquidity trap, interest rate policy does not have a liquidity effect and thus, only a long-run “expected inflation” or “Fisher” effect: When the liquidity effect is absent, the expected inflation effect is all that remains. Inflation must follow interest rates.

What a difference an election can make. Just three months after Mauricio Macri became Argentina’s new president, the country is preparing to return to international debt markets for the first time in 15 years with a mid-April debt issuance of $11.68 billion. In lifting the long-standing injunctions that led Argentina to default in 2014, U.S. District Judge Thomas Griesa noted that, “President Macri’s election changed everything.”   Argentina’s debt saga dates back to 2001, when the...

As widely expected, core PCE inflation picked up further in January, but the increase was surprisingly pronounced. However, we do not expect much more upside over the rest of the year. In Friday’s report on income and consumption, data were also published on the Personal Consumption Expenditures (PCE) deflator, the price measure targeted by the Fed. Following higher-than-expected CPI numbers the week before, a relatively marked monthly increase was also expected last Friday. However, the...