Buckle up – the inflation battle is entering a new phase

THERE is a fair chance that by the time the trees come into leaf in Washington, Frankfurt and London, this decade’s inflation crisis will definitively be over. The eye of the storm has already passed and prices have been rising at rates no higher than central banks’ targets in recent months.

In the six months between May and November last year, for example, the annualised rate of consumer price inflation was only 0.6 per cent in the United Kingdom and 2.7 per cent in the eurozone. Excluding volatile energy and food prices, annualised core rates of inflation were 2.4 per cent in both economic areas over the same period. In the United States, the equivalent measure – the Federal Reserve’s favoured personal consumption expenditure deflator – was just 1.9 per cent with a headline rate of 2 per cent.

All that central banks need, therefore, to bring inflation rates in line with their targets is to avoid a deterioration in price control in the US and UK and to effect a small improvement in the eurozone. If so, they can declare victory.