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Eurozone is at 3.4. But as inflation is the result of pandemic related production halts, the BCE is asking too wait for the shock to pass before taking measures

Eurozone is at 3.4. But as inflation is the result of pandemic related production halts, the BCE is asking too wait for the shock to pass before taking measures that may weak the economy.

jerf 5y ago
There is this weird idea I can't wrap my head around that is very popular that if you explain why something is happening, that means it is somehow not happening. This has to be one of the most clear cases of this phenomenon I've seen. Inflation is rising prices [1]. There is no requirement in the definition of inflation that it just be ambiently "happening" for no reason. Inflation always has some reason or other. That doesn't mean it's not happening. If the prices are going up because of government insolvency, it's inflation. If prices are going up because aliens are ordering all stores at raygunpoint to raise prices, it's inflation. If there's a global pandemic and everyone response with massive economic interventions and the result is rising prices, it's inflation. If prices rise this month, but we think that the reasons are probably transitory and they'll go back down next month, that's still inflation, simply followed by deflation next month. If prices rise because of second-order effects of interest rates being dropped to zero by the central bank, that's inflation. If the prices rise because the moon is in the seventh house and Jupiter has aligned with Mars, that's inflation. It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. They're not waiting for the "shock to pass", they're trying to make sure you don't find out something that you are going to use to decide they're not doing a good job. This is purely political, not economic. [1]: And whatever other details you like. I'm not too worried about exactly which definition you plug into this post, it holds regardless for any sensible definition.
- jjk166 5y ago
  No one is saying inflation is not happening, they're saying hold off on taking action to address this particular type of inflation. It's like if you have a tumor, but it's not cancerous, then there is no reason to prescribe anti-cancer medication. Of course it's still a tumor, but understanding why that tumor exists determines whether and how you deal with it.
- satao 5y ago
  It's the same diagnostic but the cause if different. Raising the interest rate to lower the inflation has a big impact in unemployment and in the whole economy. If the fed thinks the inflation is caused by a temporary supply shortage, then I agree that there's no need to mess with the interest rate. More unemployment now might be worse than a bit of inflation for one or two years.
  - seanmcdirmid 5y ago
    They would raise interest rates, not the tax rate.
    - satao 5y ago
      Sorry, not a native english speaker. I have edited the comment.
      - seanmcdirmid 5y ago
        NP, but it wouldn't necessarily be a language problem to assume the government would raise taxes to work against inflation. It would work to some degree (taking money out of the economy, increasing monetary friction), but that approach isn't politically feasible in most countries. Instead, most countries rely on interest rates and public spending (which might involve printing more money).
- thowaway1238431 5y ago
  this guy knows
- kspacewalk2 5y ago
  How you get this: >if you explain why something is happening, that means it is somehow not happening. from this: >the BCE is asking too wait for the shock to pass before taking measures that may weak the economy. is unclear. Generally, inflation is a rather noisy signal to respond to, and the tools at your disposal (as a central banker) are powerful, but have a significant time lag. So you really don't want to be reacting to every transient uptick. You should be watching for long- and medium-term trends, such as structural inflation because of fundamental constraints your economy is coming up against, things like demographics, long-term infrastructure deficits, etc. Can this COVID-related logistics crunch be long-lasting enough to warrant a response from a central bank? Maybe, but it's not at all clear.
  - seanmcdirmid 5y ago
    > Can this COVID-related logistics crunch be long-lasting enough to warrant a response from a central bank? Maybe, but it's not at all clear. No, but if they are just using the supply crunch as cover to ignore the consequences of prolonged ultra low interest rates along with direct stimulus payments, there could be a huge problem down the line. We really should have raised rates when times were good.
    - xapata 5y ago
      When were times all that good? The stock market was doing well, but I don't remember seeing great comments about wages until this year.
      - seanmcdirmid 5y ago
        Supposedly we were booking a few years ago but still need low interest rates to juice the economy. But you might be right, we might not have ever recovered from 2008 and have just been running off low interest rates since then. If that’s the case, we are most definitely screwed.
        xapata 5y ago
- tablespoon 5y ago
  > There is this weird idea I can't wrap my head around that is very popular that if you explain why something is happening, that means it is somehow not happening.... > It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. The issue isn't if it's happening or not, it's what to do about it. If you act before the "why" is determined, you might do more harm than good. IIRC, the last set of actions used to get inflation under control was to engineer a multi-year recession. If this is a self-limited blip, we probably don't want to do that. > They're not waiting for the "shock to pass", they're trying to make sure you don't find out something that you are going to use to decide they're not doing a good job. This is purely political, not economic. What evidence do you have for that? That kind of baseless speculation (that's assumed to be true) is the root of conspiracy theories.
- frgtpsswrdlame 5y ago
  It seems more like you're the one imposing politics on it. Everyone knows the inflation is occurring, the debates are all around what to do about it and those debates all depend on why the inflation is occurring. Right now those in control think that the inflation is a short, steep spike due to the costs of stopping and then restarting a global economy based on JIT inventories and so we shouldn't let it affect policy. Aka it comes much closer to the alien raygun and Jupiter alignment scenarios in your comment (in the sense that they are unavoidable realities that policy can't change), neither of which we would think to raise rates or cut public assistance to prevent.
- deleted 5y ago
  [deleted]
- taylodl 5y ago
  Understanding why something is happening is essential to deciding what, if anything to do about it. If your customer can't access your site due to a momentary network glitch, i.e. a transient issue, then you're not going to worry about it much. If many of your customers can't access your site and you've determined the network is fine, then you're going to look into doing something about it. So it's not just "explaining away" inflation. The Central Banks are keenly interested in whether this is a transient issue not warranting action or whether this is something for which they need to take action.
- chmsky00 5y ago
  It’s because our society has been trained to be risk averse so we don’t challenge traditional power memes. “Keep calm, carry on.” Thought ending slogans are what we’re weened on. Mens biology predisposes them to anxious rage and we avoid it to avoid making daddy mad. We won’t do anything to avoid the cost impact to the poor because it will cost the rich. The biology of our politics is really well understood. But I get it; it’s more fun to pretend you live in your own multiverse conjuring ad hoc explanations for everything. This has nothing to do with abstract constructs you can’t name. That’s just a byproduct of you not having embedded muscle memory to announce one. This forum really enjoys thinking it’s onto something millions of humans that came before have never considered while conjuring ideas within very similar social constraints as the last generation (especially in typical office life). Same old biology + new words != new insights. I’m not one for tradition, and believing there’s something more to it all is a human tradition going back to our beginning. In a political context, it’s always humans doing human stuff and that should be constrained to protect the freedom of humans being human. It’s only in the abstract sciences are new ideas being created. I’m really tired of these articles about economics when “political capture by aristocrats” is enough to explain most of the issues.
- mytailorisrich 5y ago
  > It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. The answer is key because that's what informs central banks and policy makers about what to do about it. That's why it's so important to try to understand why something is happening: So that you may do something about it. For instance here in the UK petrol (for cars) and gas (for heating) prices have shot up which will feed in inflation numbers. Does that mean interest rates should go up to calm things down? No, because the reasons for this inflation are unrelated and most likely short term.
- bildung 5y ago
  In economics there's the difference between transient inflation and core inflation (I think this is what GP alludes to). Really simplified: Core inflation happens when most market participants think inflation is here to stay and act accordingly. Transient inflation is caused for different reasons, a current example was the supply shock that led to the rise and subsequent fall in lumber prices. The distinction is important because in the current case there is a simple, one-time cause for the transient inflation: The disruption caused by Covid and is rippling through the layers of the economy. Most participants know this and therefore won't fear perpetual price rises, thus core inflation is pretty unlikely to occur.
- adamalt 5y ago
  One common misconception (not saying you are making it) about inflation is that it means rising prices. In fact, it is a theoretical construct about the rise of the general price level = a decrease in the value of money. All we have are proxies (CPI) for this construct and it is often really hard to know if a change in the proxy actually means a change in the general price level or just a change of relative prices as a result of eg. supply shocks. So sure, a month where CPI starts to increase faster could mean that inflation is speeding up, but it could also just be a result of changes to the real economy that influence the prices of things in the CPI basket. In that sense, something that might look like an increase in the price level might end up being just an adjustment of relative prices (that might readjust after supply issues have been fixed).
- ceejayoz 5y ago
  > There is this weird idea I can't wrap my head around that is very popular that if you explain why something is happening, that means it is somehow not happening. It's that the reason matters. If I ask "Why is my finger hurting?" and the answer is "because I got a paper cut this morning", I don't really have to take action. It'll resolve on its own. If the answer is "because a badger is gnawing on it", immediate action to resolve the issue is necessary.
- UncleMeat 5y ago
  Inflation is measured. But the controversy is about the policy proposals to address it (if any). The people saying "no urgent action needed" are not saying "prices literally aren't moving" but are instead saying that they expect high inflation to subside without policy intervention. If, for example, inflation was caused by the alignment of the planets then it'd be foolish to try to curb it by hiking rates and cutting social welfare.
- notahacker 5y ago
  > It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. Of course it does. Prices going up by 5% rather than the usual 2% over a particular time period is a fluctuation in variables, not a catastrophe. The "why" and "what next" is where the catastrophe might exist. If the central bank doesn't have a clue why it's happening that might be a cause for concern. If the reason why it's happening is because the government's only revenue stream is the printing press, that's a massive problem: the present inflation rate is the tip of the iceberg. If the reason why it's happening is because the central bank which normally keeps inflation at a consistent level has decided to hold off on interest rate rises to prioritise the economy recovering from a pandemic (perhaps also believing the factors driving the inflation are short term), above-usual inflation is a detail, and not even a surprising one.
WillPostForFood 5y ago
But as inflation is the result of pandemic related production halts It would be nice if that was true, but it is unclear if it is. It looks like it accounts for some of the inflation, but whether it is 20% is 80% of it is unknown.
boringg 5y ago
Yeah but wait for the Eurozone to explode higher with Natural Gas costs this winter...
hartator 5y ago
> as inflation is the result of pandemic related production halts Is it? It's way more probably that having 40% of our Dollars being created in the last 12 months is the actual root cause. Ref: https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL
- tootie 5y ago
  The "Money Supply Equals Inflation" crowd have been wrong as they could possibly be for the last 15 years, but are a glutton for punishment.
  - whimsicalism 5y ago
    They're out in force in this thread.

Eurozone is at 3.4. But as inflation is the result of pandemic related production halts, the BCE is asking too wait for the shock to pass before taking measures that may weak the economy.

jerf 5y ago

There is this weird idea I can't wrap my head around that is very popular that if you explain why something is happening, that means it is somehow not happening. This has to be one of the most clear cases of this phenomenon I've seen. Inflation is rising prices [1]. There is no requirement in the definition of inflation that it just be ambiently "happening" for no reason. Inflation always has some reason or other. That doesn't mean it's not happening. If the prices are going up because of government insolvency, it's inflation. If prices are going up because aliens are ordering all stores at raygunpoint to raise prices, it's inflation. If there's a global pandemic and everyone response with massive economic interventions and the result is rising prices, it's inflation. If prices rise this month, but we think that the reasons are probably transitory and they'll go back down next month, that's still inflation, simply followed by deflation next month. If prices rise because of second-order effects of interest rates being dropped to zero by the central bank, that's inflation. If the prices rise because the moon is in the seventh house and Jupiter has aligned with Mars, that's inflation. It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. They're not waiting for the "shock to pass", they're trying to make sure you don't find out something that you are going to use to decide they're not doing a good job. This is purely political, not economic. [1]: And whatever other details you like. I'm not too worried about exactly which definition you plug into this post, it holds regardless for any sensible definition.

jjk166 5y ago
No one is saying inflation is not happening, they're saying hold off on taking action to address this particular type of inflation. It's like if you have a tumor, but it's not cancerous, then there is no reason to prescribe anti-cancer medication. Of course it's still a tumor, but understanding why that tumor exists determines whether and how you deal with it.
satao 5y ago
It's the same diagnostic but the cause if different. Raising the interest rate to lower the inflation has a big impact in unemployment and in the whole economy. If the fed thinks the inflation is caused by a temporary supply shortage, then I agree that there's no need to mess with the interest rate. More unemployment now might be worse than a bit of inflation for one or two years.
- seanmcdirmid 5y ago
  They would raise interest rates, not the tax rate.
  - satao 5y ago
    Sorry, not a native english speaker. I have edited the comment.
    - seanmcdirmid 5y ago
      NP, but it wouldn't necessarily be a language problem to assume the government would raise taxes to work against inflation. It would work to some degree (taking money out of the economy, increasing monetary friction), but that approach isn't politically feasible in most countries. Instead, most countries rely on interest rates and public spending (which might involve printing more money).
thowaway1238431 5y ago
this guy knows
kspacewalk2 5y ago
How you get this: >if you explain why something is happening, that means it is somehow not happening. from this: >the BCE is asking too wait for the shock to pass before taking measures that may weak the economy. is unclear. Generally, inflation is a rather noisy signal to respond to, and the tools at your disposal (as a central banker) are powerful, but have a significant time lag. So you really don't want to be reacting to every transient uptick. You should be watching for long- and medium-term trends, such as structural inflation because of fundamental constraints your economy is coming up against, things like demographics, long-term infrastructure deficits, etc. Can this COVID-related logistics crunch be long-lasting enough to warrant a response from a central bank? Maybe, but it's not at all clear.
- seanmcdirmid 5y ago
  > Can this COVID-related logistics crunch be long-lasting enough to warrant a response from a central bank? Maybe, but it's not at all clear. No, but if they are just using the supply crunch as cover to ignore the consequences of prolonged ultra low interest rates along with direct stimulus payments, there could be a huge problem down the line. We really should have raised rates when times were good.
  - xapata 5y ago
    When were times all that good? The stock market was doing well, but I don't remember seeing great comments about wages until this year.
    - seanmcdirmid 5y ago
      Supposedly we were booking a few years ago but still need low interest rates to juice the economy. But you might be right, we might not have ever recovered from 2008 and have just been running off low interest rates since then. If that’s the case, we are most definitely screwed.
      - xapata 5y ago
tablespoon 5y ago
> There is this weird idea I can't wrap my head around that is very popular that if you explain why something is happening, that means it is somehow not happening.... > It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. The issue isn't if it's happening or not, it's what to do about it. If you act before the "why" is determined, you might do more harm than good. IIRC, the last set of actions used to get inflation under control was to engineer a multi-year recession. If this is a self-limited blip, we probably don't want to do that. > They're not waiting for the "shock to pass", they're trying to make sure you don't find out something that you are going to use to decide they're not doing a good job. This is purely political, not economic. What evidence do you have for that? That kind of baseless speculation (that's assumed to be true) is the root of conspiracy theories.
frgtpsswrdlame 5y ago
It seems more like you're the one imposing politics on it. Everyone knows the inflation is occurring, the debates are all around what to do about it and those debates all depend on why the inflation is occurring. Right now those in control think that the inflation is a short, steep spike due to the costs of stopping and then restarting a global economy based on JIT inventories and so we shouldn't let it affect policy. Aka it comes much closer to the alien raygun and Jupiter alignment scenarios in your comment (in the sense that they are unavoidable realities that policy can't change), neither of which we would think to raise rates or cut public assistance to prevent.
deleted 5y ago
[deleted]
taylodl 5y ago
Understanding why something is happening is essential to deciding what, if anything to do about it. If your customer can't access your site due to a momentary network glitch, i.e. a transient issue, then you're not going to worry about it much. If many of your customers can't access your site and you've determined the network is fine, then you're going to look into doing something about it. So it's not just "explaining away" inflation. The Central Banks are keenly interested in whether this is a transient issue not warranting action or whether this is something for which they need to take action.
chmsky00 5y ago
It’s because our society has been trained to be risk averse so we don’t challenge traditional power memes. “Keep calm, carry on.” Thought ending slogans are what we’re weened on. Mens biology predisposes them to anxious rage and we avoid it to avoid making daddy mad. We won’t do anything to avoid the cost impact to the poor because it will cost the rich. The biology of our politics is really well understood. But I get it; it’s more fun to pretend you live in your own multiverse conjuring ad hoc explanations for everything. This has nothing to do with abstract constructs you can’t name. That’s just a byproduct of you not having embedded muscle memory to announce one. This forum really enjoys thinking it’s onto something millions of humans that came before have never considered while conjuring ideas within very similar social constraints as the last generation (especially in typical office life). Same old biology + new words != new insights. I’m not one for tradition, and believing there’s something more to it all is a human tradition going back to our beginning. In a political context, it’s always humans doing human stuff and that should be constrained to protect the freedom of humans being human. It’s only in the abstract sciences are new ideas being created. I’m really tired of these articles about economics when “political capture by aristocrats” is enough to explain most of the issues.
mytailorisrich 5y ago
> It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. The answer is key because that's what informs central banks and policy makers about what to do about it. That's why it's so important to try to understand why something is happening: So that you may do something about it. For instance here in the UK petrol (for cars) and gas (for heating) prices have shot up which will feed in inflation numbers. Does that mean interest rates should go up to calm things down? No, because the reasons for this inflation are unrelated and most likely short term.
bildung 5y ago
In economics there's the difference between transient inflation and core inflation (I think this is what GP alludes to). Really simplified: Core inflation happens when most market participants think inflation is here to stay and act accordingly. Transient inflation is caused for different reasons, a current example was the supply shock that led to the rise and subsequent fall in lumber prices. The distinction is important because in the current case there is a simple, one-time cause for the transient inflation: The disruption caused by Covid and is rippling through the layers of the economy. Most participants know this and therefore won't fear perpetual price rises, thus core inflation is pretty unlikely to occur.
adamalt 5y ago
One common misconception (not saying you are making it) about inflation is that it means rising prices. In fact, it is a theoretical construct about the rise of the general price level = a decrease in the value of money. All we have are proxies (CPI) for this construct and it is often really hard to know if a change in the proxy actually means a change in the general price level or just a change of relative prices as a result of eg. supply shocks. So sure, a month where CPI starts to increase faster could mean that inflation is speeding up, but it could also just be a result of changes to the real economy that influence the prices of things in the CPI basket. In that sense, something that might look like an increase in the price level might end up being just an adjustment of relative prices (that might readjust after supply issues have been fixed).
ceejayoz 5y ago
> There is this weird idea I can't wrap my head around that is very popular that if you explain why something is happening, that means it is somehow not happening. It's that the reason matters. If I ask "Why is my finger hurting?" and the answer is "because I got a paper cut this morning", I don't really have to take action. It'll resolve on its own. If the answer is "because a badger is gnawing on it", immediate action to resolve the issue is necessary.
UncleMeat 5y ago
Inflation is measured. But the controversy is about the policy proposals to address it (if any). The people saying "no urgent action needed" are not saying "prices literally aren't moving" but are instead saying that they expect high inflation to subside without policy intervention. If, for example, inflation was caused by the alignment of the planets then it'd be foolish to try to curb it by hiking rates and cutting social welfare.
notahacker 5y ago
> It's fine and valuable to ask about the reasons why inflation is occurring, but the answer does not add or diminish it in the slightest. Of course it does. Prices going up by 5% rather than the usual 2% over a particular time period is a fluctuation in variables, not a catastrophe. The "why" and "what next" is where the catastrophe might exist. If the central bank doesn't have a clue why it's happening that might be a cause for concern. If the reason why it's happening is because the government's only revenue stream is the printing press, that's a massive problem: the present inflation rate is the tip of the iceberg. If the reason why it's happening is because the central bank which normally keeps inflation at a consistent level has decided to hold off on interest rate rises to prioritise the economy recovering from a pandemic (perhaps also believing the factors driving the inflation are short term), above-usual inflation is a detail, and not even a surprising one.

WillPostForFood 5y ago

But as inflation is the result of pandemic related production halts It would be nice if that was true, but it is unclear if it is. It looks like it accounts for some of the inflation, but whether it is 20% is 80% of it is unknown.

boringg 5y ago

Yeah but wait for the Eurozone to explode higher with Natural Gas costs this winter...

hartator 5y ago

> as inflation is the result of pandemic related production halts Is it? It's way more probably that having 40% of our Dollars being created in the last 12 months is the actual root cause. Ref: https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL

tootie 5y ago
The "Money Supply Equals Inflation" crowd have been wrong as they could possibly be for the last 15 years, but are a glutton for punishment.
- whimsicalism 5y ago
  They're out in force in this thread.