German inflation moved down to 2% from 2.2% last month. China inflation is falling on lower food costs although luxury goods have still increased. US inflation looks to fall below the 2% mark, so we are moving back to lower inflation and potential fears of deflation on lower growth. This may not happen if there is a continued price shock in agricultural markets, but the switch back to deflation thinking is again rising. With lower growth expectations, deflation fears will rise.
This gives room for another round of QE. Of course, we do not know the link between money growth and inflation. The link between money and inflation broke-down years ago, so it is hard to argue what will be the reaction to inflation expectations. As long as the output gap is negative, it is hard to argue that inflation will rise significantly.
This gives room for another round of QE. Of course, we do not know the link between money growth and inflation. The link between money and inflation broke-down years ago, so it is hard to argue what will be the reaction to inflation expectations. As long as the output gap is negative, it is hard to argue that inflation will rise significantly.
No comments:
Post a Comment