During the last weeks, I tried to give an update on inflation dynmics in the US and eurozone and statements of monetary-authority officials of both central banks. I am convinced that the governors of the FED will allow inflation to rest persistently above 2 %. Governor Mishkin reaffirmed that it would be too costly to anchor inflation expectations at a level of 2 % which would induce a prolonged period of high interest rates. However, high interest rates represent the opposite of what the FED's objectives are, i.e. maximum employment, low long-term interest rates and price stability. In contrast, the ECB made totally clear in her press conferences that she is willing to achieve an annual inflation rate at around 2 %. I think, eurozone macroeconomic environment is favourable to hit the inflation target and support ECB interest-rate policy.
1. Appreciation of the euro.
2. Wage settlements on a european perspective are quite moderate. This may come from some member countries' need to catch-up with Germany competitiveness.
3. A slowing US economy supports eurozone's macroeconomis outcome not to overheat.
4. Finally, despite lasting critique about ECB's strategy, one has to grant that she successfully allowed trend inflation not to rise beyond a level from where higher inflation expectations have to built.
