I consumer prices accelerate, but inflation remains low. How can this mystery be explained?
Let's begin by specifying that acceleration does not occur everywhere and does not have the same intensity everywhere. The latter is maximum in the USA, where on an annual basis the Consumer price index (one of the many indicators, and not even the one preferred by the FED) reached 5,4% in June and on an annualized quarterly basis it is even 9,6% (10,5% net of food and energy, 4,5% annual). Stuff from red alert, which once would have already triggered proactive interest rate hikes.
In 'euro area we are at a more modest 1,9%, and down from 2,0% in May. The dynamics core it is even at a paltry 0,9%, and stable on May but down sharply from 1,4% in January. In China inflation is also descending, thanks to the tightening of the Chinese authorities both in expansive economic policies and in social contacts (to avert the danger of the spread of the Delta variant of the virus) and in administrative controls to stop the mad rush of raw materials.
However, it is not enough for retail prices to go up to have it inflation, as explained numerous times in the past Lancet. Instead, it is necessary that this ascent triggers emulative and imitative processes, unleash wage chases, "embodied" in expectations and behaviors. There is no trace of any of this in the United States, much less on this side of the Atlantic.
Le expectations, assessed on financial market indicators and in household confidence surveys, remain well anchored, as central bankers use to say. THE wages, even when correctly measured to take into account changes in employment (today the mix is returning to pre-pandemic normality, with an increase in the weight of lower-paid jobs in services), they rise at the same rate as at the end of 2019, perhaps even lower.
Even at the level of raw material there is an easing of tensions. Maybe it's just a break. However, we should remember that the increase in quotations calls for greater supply, which leads to a cooling down of price increases, or even to reversing the sign of price variations. This will also happen for the highly sophisticated raw material i microchip: shall we bet that in a year we will have excess?
Thus, the liveliness of the price lists, including those to production, which are the ones that recorded the strongest increases everywhere, because semi-finished goods weigh heavily on them, which are more affected by the rush of commodities, is destined to fade away.
On the other hand, there are cyclical and structural reasons for believing that the deflationary pressures. The cyclical ones are essentially in the high number of people looking for a job or still discouraged from looking for it (considering the still widespread fears of being infected) that the pandemic has caused and that it will still take a few more quarters, at least, to reabsorb.
The structural reasons should be known by now, but it seems not in reading the worried comments of many analysts and economists. It is therefore convenient to repeat them: increase of competition from globalization and new technologies; efficiency resulting from the diffusion of innovations, starting with machine learning which reduces the consumption of capital to continue with theE-commerce spreading into ever new fields.
A statistical curiosity. The ECB has decided to change the reference index: no longer the harmonized one developed today by EUROSTAT, but an enriched version of the rents charged to the owners of the homes they occupy. These rents are already included in all US price indices, resulting in a systematic difference between US and European inflation. Therefore it seems correct to do it also for us.
However, in deciding in favor of this inclusion does not seem a stranger image issue. In fact, if one wanted to have a measure of the trend in consumer prices that includes imputed rents, it would suffice to resort to the household consumption deflator, which already contains them. Now, changing the indicator on which the achievement of a goal is evaluated is very reminiscent of the draw the target around where the thrown dart lodged. After many years in a row in which the price increase has been lower, often by a lot, than the famous 2%, by adding a component that basically increases more than the average, the target becomes easier to reach. According to one preliminary estimate this addition is worth 0,4 percentage points, so that the trend in June would be 2,3%, with that core at 1,3%. For the benefit of credibility.
