Friday, November 30, 2007

European Inflation Getting Worse

The inflation problem is getting worse and worse in the euro area. This is illustrated first of all by the fact that M3 growth accelerated from an already high 11.3% in September to a new all time high of 12.3% in October.

Moreover, consumer price inflation rose from 2.6% in October to 3.0% in November, according to Eurostat's preliminary "flash" estimate.

Yet despite this surge in both monetary and price inflation, the ECB betrays its legal obligation to hold M3 growth at 4.5% and consumer price inflation below 2% by failing to raise interest rates and by offering "emergency loans" to failed investors.

Meanwhile, monetary crank Sarkozy tries a light version of Mugabe's inflation fighting tactic of government price controls, by pressuring retailers -using unspecified threats- to cut prices. This tactic failed miserably for Mugabe and is likely to fail for Sarkozy as well. In order to obtain lower prices you must rein in money supply growth and/or pass supply-boosting spending- and tax cuts.


Anonymous Contrarian Investors' Journal said...

Australia's M3 growth even worse (see the scary chart on Australia's M3 vs base money growth since 1959). In the year to September 2007, Australia's M3 growth hits 18%! Looks like Australia beats Europe in the race to inflation and currency debasement.

Yes, price controls is counter-productive idea. China tried it and the consequence is fuel shortages everywhere. I'm just astounded as to why politicians never learn!

11:35 PM  

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