Friday, February 1, 2008
On inflation and macro
We will be starting our discussion of macro pretty soon so I'd like you to read this IHT article on inflation pressures in Europe. Inflation is defined as a 'sustained increase in the average price level', in other words it exists if prices, on the average, have a tendency to rise. Inflation is risky business in the sense that it creates costs on the economy and it becomes difficult to decrease once inflationary expectations are created.
The article discusses the causes of this inflationary bout ('...as oil prices hover above $90 a barrel and the conversion of farmland to grow biofuel crops increases food prices) as well as the trade-offs the ECB faces('The ECB has resisted increasing political pressure to ease monetary policy, keeping the benchmark interest rate at 4 percent since June').