The truth about inflation
JUST three short months ago, the focus in financial markets was all about deflation. Commodity prices remained weak, inflation was turning negative in the euro area, and European Central Bank president Mario Draghi conjured images of a "Japan-style" scenario.
Since then, inflation has started to offer some positive surprises. German consumer prices have picked up quickly. US core consumer price inflation has consistently come in stronger than had been expected.
Some economies still experience negative inflation, but this is the negative inflation of a relative price shift, not the deflation of a general price decline. Having falling oil prices, and all other prices rising, is a very different economic proposition from the across-the-board price decline that warrants the title "deflation".
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