Wednesday, March 4, 2015

Inflation round-up

The Reserve Bank of India is officially an inflation targeter. The agreement between the Ministry of Finance and the RBI was signed on February 20, and published a few days ago. The target is to "bring inflation below 6 per cent" by January 2016. For financial year 2016-17 and subsequent years the target will be 4±2%, so the acceptable inflation band will be 2%-6%. That would represent a significant reduction from the typical inflation rates in India since 2008.

RBI governor Raghuram Rajan has de facto followed an inflation target since the start of 2014, but the monetary policy framework was not official. Prior to inflation targeting, the RBI's policy target can be described as flexible, as it included, besides inflation, the rupee exchange rate and banking sector stability.

Amol Agrawal, at Mostly Economics, doesn't like the agreement.


Eurozone inflation expectations are sinking, say researchers at the New York Fed. Survey-based inflation expectations have been falling at the one, two, and five-year horizons. They're particularly worried that the whole distribution of inflation expectations is shifting down, not just the median, or the lower percentiles.

A report by Generali, however, shows that inflation expectations measured by inflation swaps have picked up during 2015.


Inflation, relatively: The following map shows inflation relative to each country's own history (the 10-year z-score), as of 2014-Q4. Despite abundant talk of Russian inflation, prices are increasing slightly more than they have, on average, over the past ten years, adjusted for standard deviation (z score of 0.13).

The highest inflation rates, relative to their own medium-term experiences, are for Argentina, Bolivia, Venezuela, Japan, and Gabon. The lowest inflation rates, relative to their own experiences, are in Greece, United Kingdom, Hungary, and Poland, in that order.

The eurozone is pretty green (meaning low inflation), but if you squint you'll notice that Sweden and Switzerland are experiencing relatively less deflation than their European neighbors. Even the U.S. is deviating more from its own history than Switzerland.

One-year inflation rate, 2014-Q4, 10-year z-score, relative to own country's history. Source: FactSet data,, author's elaboration.

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