The inflation debate: my view
THE DEBATE
There is just no dollar inflation in the world. Don't believe it? Then go ask your boss a pay rise and see if he/she will give one to you
While we await for CPI (inflation) numbers in US at 13.30 CET, the debate on inflation continues. Many Central Banks continue to fail to hit inflation tgargets, in fact now some are considering changing their targets for inflation. As a reminder, central banks' roles are usually two (depending on the country' mandate):
- support employment growth
- ensure price stability
The latter is done by targeting price inflation.
As you can see from the chart below, inflation in the 3 major eeconomic areas did increase somewhat early last year, hitting the famous 2% target, however it has been declining since.
Central bankers are finding really a hard time to hit this target of 2%
Norway, for instance, has actually decided to lower its price inflation target recently from 2.5% to 2%. Many other countries are actually UNofficially talking about doing the same, such as in Sweden, Argentina and the EuroArea. However though there’s no one-fits-all solution for central "bankSters", the debate is hot.
Mr Borio, from the Bank of International Settlements, added fuel to the debate by, rightly in my opinion, raising the subject of re-thinking completely the framework of judging inflation because globalization and technological innovation is influencing inflation a long way.
Just as globalisation, technological advances threaten labour’s pricing power – think robots as opposed to foreign workers. And both reduce incumbent firms’ pricing power – through cheaper products, as they cut costs; through newer products, as they make older ones obsolete; and through more transparent prices, as they make shopping around easier. No doubt, globalisation has been the big shock since the 1990s. But technology threatens to take over in future.
The future of central banking depends on the understanding and reaction on such structural changes.
A decentralised system, rather than centralised, is probably the best way going forward (but that is another debate), even though, should this become reality, the ride towards it would be very very rough.
- What do you think?
Sources:
@fedescolari actually I feel that decentralised system is definitely the way going forward. But i think there is a even greater need to increase the liquidity.