While Household Income Falls, Central Bankers Are Pushing for Higher Prices

by Daniel Lacalle

Central banks continue to be obsessed with inflation. Current monetary policy is like the behaviour of a reckless driver running at 200 miles per hour, looking at the rear-view mirror and thinking “we have not crashed yet, let’s accelerate”.

Central banks believe that there is no risk in current monetary policy based on two wrong ideas: 1) That there is no inflation, according to them, and 2) that benefits outstrip risks.

The idea that there is no inflation is untrue. There is plenty inflation in the goods and services that consumers really demand and use. Official CPI (consumer price index) is artificially kept low by oil, tourism and technology, disguising rises in healthcare, rent and housing, education, insurance and fresh food that are significantly higher than nominal wages and official CPI indicates. Furthermore, in countries with aggressive taxation of energy, the negative impact on CPI of oil and gas prices is not seen at all in consumers’ real electricity and gas bills.

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