Prices, prices, everywhere
- One of the great tragedies of modern human civilization is that there are not enough economists in the world. We have plenty of irrational consumers, but insufficient economists. Nowhere is this more apparent than in how consumers react to inflation.
- Japanese consumers remain convinced that they have some of the highest inflation rates in the developed world. As today's consumer price inflation shows, they do not. However, this mistaken believe may weigh on household spending (weak again today) by creating an illusion of collapsing real living standards.
- German inflation fell more than expected yesterday. Seasonal factors around Easter are part of this, but food prices weakened significantly. This matters because consumers' perceptions of inflation (and ultimately consumer confidence) are strongly influenced by high frequency purchases like food. Today's Euro area CPI will be affected by the German numbers.
- The US offers us the personal consumer expenditure deflator, an inflation number that is favored by the Federal Reserve and which more closely resembles Euro area consumer prices than does the official US consumer price measure. Strangely, markets emphasize consumer prices more than the PCE deflator.