The Recurring January Depression
David Beckworth argues that current ECB monetary policy is "tight". I actually agree with that euro area bond yields have risen together with the euro exchange rate and the fact that M1 money supply growth has dropped to zero.
However, one of his arguments, that consumer prices fell in January compared to the previous month is not valid.The monthly change number he quotes is seasonally unadjusted. By contrast, both the all-items and "core" consumer price inflation 12 month change rates increased slightly during that month.
The reason for that is that Eurostat do not seasonally adjust monthly changes. And because seasonal factors does affect monthly changes greatly, the unadjusted monthly inflation number tells us little by itself.
To view this monthly drop in consumer prices as proof of deflation is thus as misleading as viewing the always reoccuring drop in unadjusted retail sales in January as proof of a new depression-or viewing the always reoccuring increase in unadjusted retail sales in December as proof of a strong boom.
However, one of his arguments, that consumer prices fell in January compared to the previous month is not valid.The monthly change number he quotes is seasonally unadjusted. By contrast, both the all-items and "core" consumer price inflation 12 month change rates increased slightly during that month.
The reason for that is that Eurostat do not seasonally adjust monthly changes. And because seasonal factors does affect monthly changes greatly, the unadjusted monthly inflation number tells us little by itself.
To view this monthly drop in consumer prices as proof of deflation is thus as misleading as viewing the always reoccuring drop in unadjusted retail sales in January as proof of a new depression-or viewing the always reoccuring increase in unadjusted retail sales in December as proof of a strong boom.
posted by stefankarlsson at 12:12 PM
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