Prices in Europe are falling instead of rising despite the European Central Bank (ECB) buying assets since 2015.
That’s according to the latest data by Eurostat which estimates inflation fell by 0.3% this December across some of the world’s biggest economies.
A fall in energy prices appears to be the primary reason as food prices are up by close to 2%. However, it’s not clear just how much of these lower oil prices have been passed on to households.
Nor is it clear why the biggest single expenditure, rent or mortgage payments, are not included in this calculation.
Making this very narrow inflation, and yet it’s what the central bank uses to justify its continued printing to the benefit of Greece which now the central bank is paying to borrow, quite a turn from bankruptcy bond rates.
In addition, non-energy goods have seen a fall in price too with old media claiming it’s due to falling tech prices and digitization reducing costs.
That accounts for just 0.15% of the inflation rate, with the real culprit probably the collapse in the velocity of money.
The reason for that is likely households holding off until maybe this summer when hopefully buzzing streets return.
While the primary reason is probably because a lot of this money printing is going to people who don’t need it.
Commercial banks just don’t lend to people who actually need the money, like entrepreneurs starting a business. They tend to lend to those who already have plenty, and those individuals put them in houses or other assets which are not accounted in this inflation calculation.
Making this -0.3 number somewhat deceiving, and yet that’s the number ECB uses for its policy to say to the public: it’s fine if they keep printing because it is not causing inflation.
Well, if you say so. We have our truth machine here called bitcoin, so you can keep on printing Lagarde and tell them whatever you like.