Earlier this week I argued that the ECB’s inflation target of just below 2% is too simplistic, especially during periods of supply-side price shocks: energy, food, VAT hikes. Here’s a menu of reactions to the ECB’s announced rate hike (Trichet used the phrase ‘strong vigilance’, which historically is a leading indicator of a rate hike […]

I WAY underestimated the simplicity of ECB policy. I think that the terse monetary policy objective explains quite well the ECB’s announced stance on policy today: The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term. […]

The global inflation picture is heating up. On Google, a search of ‘inflation’ spanning the month of February 2011 gets 311,000,000. For one year ago, the same search parameters yielded 1,850,000 hits. Inflation’s on the monetary policy makers’ minds. But why? In the developed world, it’s a food and energy story! Seriously, look at German […]

Today the German Federal Statistics Office reported that the February Consumer Price Index is expected to mark a 2.0% (2.047% by my calculations, which is very close to a rounded 2.1%) annual pace in February 2011. This is simply a ‘flash’ print, and the Statistics Office was very careful to discount the fact that inflation […]

Bond markets are pricing in rate hikes this year by the ECB and the BoE. Both are inflation targeters, so which one should react first to a possible spike in oil prices? What’s your answer? (1) Neither. As FX appreciation and fiscal austerity pass through to domestic prices, the core will drag down the headline. […]

Eurointelligence cites a Die Zeit interview (the original interview here) with ECB central bank President Jean-Claude Trichet. Their take on it is quite interesting, which suggests that most are ‘wrong’ about the path of ECB policy. According to Eurointelligence: Central bankers are trained not to say anything of any relevance in long speeches or interviews, […]

Key European CDS are starting to turn in the more northern direction again, as the German-French ‘pact for competitiveness’ faces near-unanimous pushback across Europe. Credit default swaps (CDS) are a market security used by investors to buy 5-yr protection (in this case) against default (or the like). As the spread rises the implied probability of […]

David Beckworth points to Scott Sumner, who points to Kantoos on the effectiveness of nominal income targeting in Germany. Kantoos’ illustration certainly suggests that the ECB has been successful in getting the dynamics of output and prices (nominal GDP) right over the last decade. I have no contention with the historical evidence. Whether or not […]

Mark Thoma is a truly stand-up guy. We need more like him screaming for the unemployed and underemployed. I’ll comment just a bit more after Mark’s commentary. Mark Thoma on The Slow Recovery of Unemployment: I don’t like to make economic forecasts. Though I do it on occasion, I generally leave that to Tim Duy […]

I’ll forward you to Spencer’s post on the January Employment report. As always, he sifts through this massive report and eloquently describes the state of the labor market. But I thought that I’d add a bit on the disparity between the household survey and the establishment survey. The annual population revisions and weather distortions have […]