Even The People ‘Printing’ The ‘Money’ Aren’t Seeing It

Everyone in Europe has long forgotten about what was going on there before COVID. First, an economy that had been stuck two years within a deflationary downturn central bankers like Italy’s new top guy Mario Draghi clumsily mistook for an inflationary takeoff. Both the inflation puzzle and ultimately a pre-pandemic recession have taken a back seat to everything corona.

Whereas Draghi spent those years howling for inflationary conditions that were nowhere in sight – and plenty which unambiguously dictated its opposite – this supposedly virus-driven recession has provided official cover. As a result, official numbers and commentary surrounding them have become more honest.

With no one else to blame back then, inflation they said was guaranteed without the slightest trace. Nowadays, even when there might be the slightest trace, those at the ECB, anyway, are approaching this differently.

If Eurostat’s flash inflation report for January 2021 had time-traveled back to January 2018 when Draghi was reaching the heights of his unbacked confidence, who knows the greater hysteria which might’ve come from it. Europe’s statistical agency instead reported yesterday that inflation rates jumped last month, accelerating unusually.

The headline HICP increase was 0.9% year-over-year, not a whole lot but a serious improvement from five straight months of outright deflation which had December’s rate at -0.3%.

The core HICP figure for Europe surged to 1.4% from its record low of 0.2% each the prior three months. Not just well off its lowest ever December to January, the latter’s acceleration left the core number at its highest since 2015. Nobody loves the “highest since…” phrase more than central bankers talking inflation and relatedly interest rates.

Rather than embrace what seems like all its “money printing” coming to fruition finally, the ECB immediately poured reasonable and honest cold water all over it. This wasn’t the economy roaring back to life seasoned by an over-abundance of liquidity, instead the jump in consumer prices were products of one-off factors related largely to governments beginning January 1 reimposing full VAT tax rates previously suspended last year as “stimulus” measures.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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