March 30, 2023

Headlines like this should make most of us on the left shake our heads:

I think we have all learned a lot of different things about inflation and prices over the previous couple of years. Unfortunately, the inflation "debate" continues to exclude any analysis from those who are able to explain what is happening.

Core inflation in Europe is continuing to be sustained above 5.5%. This is the measure of price increases of things not directly affected by large fluctuations in the price of energy/oil (like food).

We have discussed the disconnect between "prices" and "inflation" before (my "prices are to inflation as weather is to climate change" comment). This concept mystifies the mainstream economists, however.

This from Bloomberg again:

Spanish numbers released today underscored just how powerful the opposing consumer-price forces are. The headline inflation rate fell by almost half, to 3.1% — no longer very far from the 2% level targeted by the ECB. But core price growth slowed only a touch, to 7.5%.

And the FT this morning:

German inflation fell less than expected in March despite a steep drop in energy costs, curbing hopes of a rapid easing in wider price pressures across the eurozone.

The 7.8 per cent year-on-year rise in harmonised German consumer prices compared with the previous month’s rate of 9.3 per cent, but was higher than the 7.5 per cent forecast by economists polled by Reuters.

The answer from European bank economists is if it isn't working, then more faster is the only option. What does that mean? It means higher central bank interest rates for longer. Which, in turn, means recession is almost guaranteed at this point.

The impact on the banking system is interesting to watch. The ideologues in the central bank are made-up of people from the private banking system they are meant to sustain. But, the ideology of interest rates and inflation (and unemployment) at central bank table seems to even override the immediate needs of the banking community.

It would be interesting to watch if it was not going to make life difficult for working people.