Mr. Draghi you have not delivered price stability. Now please do!

The ECB is very proud of its 2% inflation target. The problem is just that it is not hitting it.

According to the ECB price stability is defined as “inflation rates below, but close to, 2% over the medium term”.

Today the ECB published it’s new inflation and growth forecasts. The ECB now forecasts 1.4% inflation in 2013 and 1.3% in 2014. That might be below, but it is certainly not close to 2%. In fact inflation has been nowhere close to 2% for five years (!) if you look at the GDP deflator rather than HCIP inflation.

So how does the ECB response to its own forecast that it will fail in deliver price stability in both 2013 and 2014? Well, by saying everything is just fine and no monetary easing is needed.

No further comments are needed – its just depressing…

PS don’t tell me that euro zone inflation is low because of a positive supply shock. In 2011 the ECB nearly killed the euro by hiking interest rates twice in response to a negative supply shock.

PPS with M3 growth just above 3% is it pretty easy to conclude that the euro zone is heading for deflation sooner or later.

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3 Comments

  1. Benjamin Cole

     /  June 7, 2013

    Hold the monetary noose around the neck of the economy. That leads to growing fiscal deficits. Consider the deficits to be stimulus, and thus tighten monetary policy more.

    Every parent knows this reality: You cannot spank your baby into not crying.

    The ECB is trying to spank the baby into not crying anymore.

    Reply
  2. What are you talking about Lars, Draghi is the best central banker in the world! Don’t you know that with less inflation people can buy more stuff!

    Reply
  1. Mr. Draghi you have not delivered price stability. Now please do! | Fifth Estate

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