There’s no free lunch in economics, not even for central bankers and their powerful printing presses. As central banks across the world come up with ever-more exotic plans to stimulate us out of our economic malaise, the threat of inflation is always looming in the background. Some recent data points quietly point in that direction. The Wall Street Journal:
Eurostat, the European Union’s statistics agency, said that producer prices in August rose 0.9% from July. The last time prices rose at a faster rate was in January 2011. Compared with the same month last year, producer prices rose 2.7%, sharply higher than the rate of 1.6% in July.“The August euro-zone producer-price data will not go down well with the ECB and likely tilt the odds further against an interest-rate cut at their October policy meeting on Thursday,” said Howard Archer, economist at IHS Global Insight.
These are some fairly small numbers as inflation goes, but with printing presses running around the clock all over the world, markets are easily spooked. Younger readers won’t remember this, but in the 1970s the world had a bout of what people called ‘stagflation’ when economies were growing slowly, unemployment was stubbornly high, and inflation drove interest rates through the roof. We aren’t there now — inflation by 1970s standards remains remarkably benign even with this latest uptick — but the world’s central bankers are well out of their comfort zones, and nobody really knows what comes next.[UPDATED]