Back
23 Jan 2015
Will ECB’s QE actually boost inflation? – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team argues that the experience of other central banks makes them question whether the asset purchase plan by the ECB will actually boost inflation or not?, with ECB model anticipating a CPI boost by 0.4 percentage points in 2015.
Key Quotes
“The more significant problem is one of efficacy. Will it boost inflation? Reports indicate that the ECB's model shows the asset purchases could boost CPI by 0.4 percentage points this year and 0.3 percentage points in 2016. The experience of other central banks makes us more skeptical.”
“The Swiss National Bank expanded its balance sheet to 80% of GDP and still was experiencing deflation, even before it abandoned its currency cap. The BOJ has been unable to engineer much inflation, and, in fact, revised down its forecast for core CPI (adjusted for the sales tax increase).”
“The currency channel may be from where the biggest boost to inflation may come from. Consider that from March through early October last year the euro declined by 5.4% on a trade-weighted basis. Since the middle of December, it has depreciated another 7.8%, thanks in part to the SNB's recent decision. The ECB's new purchase program will not start until March (by which time inflation will likely be even lower).”
Key Quotes
“The more significant problem is one of efficacy. Will it boost inflation? Reports indicate that the ECB's model shows the asset purchases could boost CPI by 0.4 percentage points this year and 0.3 percentage points in 2016. The experience of other central banks makes us more skeptical.”
“The Swiss National Bank expanded its balance sheet to 80% of GDP and still was experiencing deflation, even before it abandoned its currency cap. The BOJ has been unable to engineer much inflation, and, in fact, revised down its forecast for core CPI (adjusted for the sales tax increase).”
“The currency channel may be from where the biggest boost to inflation may come from. Consider that from March through early October last year the euro declined by 5.4% on a trade-weighted basis. Since the middle of December, it has depreciated another 7.8%, thanks in part to the SNB's recent decision. The ECB's new purchase program will not start until March (by which time inflation will likely be even lower).”