In macro we learn that credibility is very important for a Central Bank (CB), since it allows for less onerous adjustments for the economy. In the recent(?) past, the newspapers have becoming increasingly concerned with ECB missing its target inflation of 2%. However, not every cause for a smaller inflation is a bad one, at current moment. The oil prices have been very low, and this shock to the price-setting curve is not bad, instead it can be seen as an increase in the productivity, increasing the level of the equilibrium output. This may decrease inflation, but does it necessarily bring about the problems of deflation?

Also, when reading this article on the impact of the QE of the ECB, it seems that they use not Inflation, but Core inflation and Core inflation-adjuted to energy prices to 'filter' the true impact of QE on the price level of the economy. Should we not also look at core inflation and its adjustment for energy prices when assessing the ECB policy efficacy?

Any help would be appreciated.

  • $\begingroup$ The prices observed consumption include the impact of lower oil prices. oil prices drop >> lower cost production >> lower price to the customer's purchase >> Administrative Officer, in charge of monitoring prices, notes the effective lower prices. The law of large numbers (mathematical) provides a result on the index of inflation almost perfect. $\endgroup$ – Aymen Fassi Aug 11 '16 at 12:31
  • $\begingroup$ Who is this "we" who assess ECB policy efficacy on the basis of headline inflation figures only? I don't. Do you? And so what if some newspapers do? $\endgroup$ – 410 gone Sep 13 '16 at 9:22
  • $\begingroup$ @EnergyNumbers for many participants in the financial markets, I think it's one of their key criteria to assess credibility... I may be mistaken, though. $\endgroup$ – An old man in the sea. Sep 13 '16 at 12:13

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