Philippe Waetcher (Natixis AM) | The low inflation observed in the euro zone will translate into very weak wage dynamics. Demand will be weak while health constraints will weigh on activity. A situation that will not make it possible to fix on medium-term prospects compatible with the recovery plans. Inflation is the answer. The government on this point has more power than the central banks.
Link Securities | According to preliminary data from the Spanish National Institute of Statistics (INE), the Consumer Price Index (CPI) fell to -1% year-on-year in May (-0.7% in April). The drop reflected the decline in fuel and oil prices, while food prices continued to rise. May inflation has not seen a decline to -1% since 2016. We do not rule out that the entire Eurozone could end up heading into deflation over the coming months, at least those economies most penalized by the pandemic.
Monetary and fiscal stimulus policies have failed to reactivate consumer confidence in Japan and it declined into a light, but cronic deflation of 0.3% in 2016.
Monetary policy is not equipped to control the real economy and the financial economy at the same time. Its aim is to moderate the fluctuations in real variables, GDP, employment and prices. But this destabilises the financial market, fuels speculation and increases household and corporate debt with the banks.
Compared to the US, Switzerland has been a low inflation country, but the recent turn to deflation smacks a lot of too low NGDP growth.
Are we putting the responsilibity of exiting the crisis on central banks’ shoulders? Is ECB’s president Mario Draghi doing traders a favour by playing down the ECB’s responsibility for contributing to volatility? Professor of Financial Mathematics at Bocconi’s University Marcello Minenna answers to these questions from Milan and argues that a low interest rate environment is here to stay.
BEIJING | June 16, 2015 | By Yu Hairong and Wang Liwei via Caixin | Economists are divided over whether deflation in China is endangering the economy or whether it is even a problem.
Guest post by Benjamin Cole via Historinhas | What to make of the recent dust-up around Rogoff World, in which the U.S. would pursue a cashless, deflationary federal police state characterized by negative interest rates? Harvard don Ken Rogoff has suggested this is the best macroeconomic option going forward. My take-away? The economics profession is deep into dementia.
ZURICH | UBS analysts | Our central case is that we will not have deflation in any country except for Spain in 2015. But we cannot rule out the possibility of deflation, so here we look at assets that may outperform during periods of deflation. Generally deflation is bad for equity which de-rates aggressively but the story is more nuanced because particular sectors and styles are affected quite differently.
LONDON | Barclays analysts | We believe this week’s data on inflation and economic activity have provided more arguments to step up ECB’s asset purchase programmes by including EGBs on 22 January, which is our baseline scenario. Inflation entered negative territory in December and is likely to stay negative for a few months before a weaker euro improves the inflation and growth outlook.