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Chart of the Day: No Inflation in the Developed World Despite QE

By Marc Chandler, Global Head of Currency Strategy, Brown Brothers Harriman

After several years of asset purchases by central banks, and in other ways, extremely easy monetary policy, general price levels have not shown the kind of inflation that many observers have feared. In fact, the opposite is a more potent force presently.

This Great Graphic, composed on Bloomberg shows Japanese (white), US, (yellow) and euro zone (green) inflation.

inflation

The BOJ is pursuing aggressive QE (so aggressive it is called QQE) to push inflation higher. Thus far, the increase in price pressures is a result of food and energy prices. The ECB surprised most observers with a 25 bp rate cut last week to address the disinflation, not to weaken the euro, we were told.

On Friday, the euro area will confirm the Oct inflation, likely in line with the preliminary 0.7% Japan’s Sept national CPI was 1.1% and the US Sept CPI was 1.2%. The BOJ is most adamant about pushing inflation higher. US inflation is nearly as low as Japan’s, but many expect the Fed to begin tapering as early as next month.

The euro area has the lowest inflation of the three and the 25 bp rate cut is unlikely to have much impact on arresting the disinflationary forces. The exchange rate is one channel that monetary policy can be transmitted and coming into today’s session, on a trade-weighted basis, the euro was almost 1% firmer than it was last Thursday after the ECB delivered the rate cut.

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