All the major central banks are so preoccupied with attempting to rescue their drowning economies by creating money that they are brushing aside the consequent inflation warned by many economists months ago.
The Bank of England has the thickest skin of all: It no longer gives excuses for ignoring inflation. The U.S. Federal Reserve is constantly inventing new theories while trying to explain away inflation, and while trying to justify its QE2 quantitative easing project despite inflationary signs aplenty.
The European Central Bank has the thinnest skin of all, and recently raised interest rates to defend its credibility in targeting price stability even though, unfortunately, the ECB won’t be able to maintain this stance. The Bank of Japan is still shy, but it will have to out-QE the Fed to help its government pay for post-earthquake reconstruction.
Price stability is supposed to be central banking’s main goal. But these days, central bankers think they’re super heroes who should rescue the world and make everyone happy.
Inflation, since its negative effects are spread thin and take time to materialize, is ignored. Today’s central banking is about so many things except inflation. This is why inflation will worsen for a long time to come. Indeed, inflation is the main theme for the current decade. A change will occur only when the current generation of central bankers is replaced.
Inflation’s Hold
When western governments decided to bail out their bankrupt financial institutions in 2008, I foresaw inflation ahead. I argued it would start with commodities and in emerging economies, and then spread to developed economies. But now it seems inflation has already taken hold in developed economies. Read rest of article on Andy Xie's blog
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