We now have the inflation story for October, that’s in the EU, US and Japan. Maybe it is time for governments to hit the money printing press.
Inflation across the euro area rose to 0.5 per cent in October. It is still negative in Bulgaria, Cyprus, Ireland, Croatia, Slovakia and Italy, while it is close to two per cent in Belgium. But Inflation is only over one per cent in Estonia, Latvia, Hungary, Portugal, Sweden, Austria and of course Belgium.
In Germany, inflation was 0.7 per cent and 0.5 per cent in France.
It looks like the deflation fear is dying, but inflation is still way below target, and is about as scary as a kitten.
In the UK, inflation is expected to rise sharply, with many economists forecasting it will top three per cent next year. But this is down to very UK specific issues, mainly related to Brexit and the fall in sterling. Although, even in the UK, the fall in sterling appears to have gone into reverse, meaning that the inflation shock may not be as bad as many have predicted.
US inflation rose to 1.6 per cent in October, but the core rate, that’s the inflation reading that strips out food and energy and is the measure that central banks say they focus on, has been stickier than glue for well over a year. In October, the core rate fell to 2.1 per cent, it has been hovering between two and 2.3 per cent for around 18 months. Back in the summer of 2015, many economists looked at the US core inflation rate and cited this as a reason to be alarmed. They said that if the core rate went on rising, interest rates would have to shoot up and at a time when global debt was so high, this could be catastrophic. Instead US core inflation has got stuck. Maybe Trumponomics will push US inflation up higher, but all we can do is focus on what the data is telling us, and that is telling us to relax.
In Japan, the land that has now seen several years of Abeonomics, as its Prime Minister Shinzo Abe tried to kick life into the economy, headline inflation leaped in October, rising from minus 0.5 per cent in September to plus 0.1 per cent. That is still an incredibly low inflation rate, but was the October jump a sign of things to come? Is Abeonomics working? Maybe, but the big rise was largely down to a jump in fresh food prices, which is notoriously erratic. Capital Economics predicts that Japanese inflation is set to fall again.
While it may be about as scary as kitten, you could also say inflation is the dog that hasn’t barked. For most of this decade, many economists have been warning that QE and surging government debt was a recipe for runaway inflation. So far, they have been very wrong. Maybe then, it really is time to consider the extreme option and resort to the money printing press, and use this money to either fund investment into infrastructure and innovation projections, or scatter it across the land from a metaphorical helicopter.
