Is Europe’s Central Bank Finally Getting Worried About Deflation?

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Brad DeLong notes that Mario Draghi, the head of Europe’s central bank, went off text in his speech at Jackson Hole. Here’s his summary of Draghi’s extended ad-lib:

The speech text says:

  1. The ECB knows that inflation has declined.
  2. The decline in inflation has not led to any decline in expectations of inflation.
  3. THE ECB will, if necessary, within its mandate, use QE and other policies to keep expectations of inflation from declining.

The speech as delivered says:

  1. The ECB knows that inflation has declined.
  2. My usual line is that the decline in inflation is due to temporary factors that will be reversed.
  3. That explanation is now long in the tooth: the longer “temporary” lasts the greater the danger.
  4. In fact, it is too late to “safeguard the firm anchoring of inflation expectations”.
  5. Inflationary expectations have already declined.
  6. We will use all the tools we have to reverse this.

Is this deviation a mere line wobble….Is this deviation an audience effect….Or does it signal a recognition on Draghi’s part that the Eurozone is heading for a triple dip, and that if he doesn’t assemble a coalition to do much more very quickly to boost aggregate demand we will have to change the name “The Great Recession” to something including the D-word, and he will go down in history as the worst central banker since the 1930s?

I would like to know…

I suppose we’d all like to know. The Germans better start taking this stuff seriously pretty soon. They can’t stick their heads in the sand and live in the past forever.

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In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America will move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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