Sunday, February 03, 2008

Inflation in Europe

The Europeans are taking inflation much more seriously. But I'm wondering if their main inflation worries are trying to stamp out inflation expectations amongst the population.

When workers begin to expect inflation, they build it into their wage demands and in effect it becomes a self-fulfilling prophesy. People get inflation because they expect it and price it in themselves.

The ECB seems to be aware of that and is trying to nip expectations at the bud.

I would thing that other price increases, especially for imported goods, would be mitigated by the super-strong Euro. (Strong Euro increases the ability by Europeans to buy goods on the global market.)

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