Central Bankers Struggle To Find Inflation to Fight

Monetary authorities debate the extent to which they should pursue other goals.

Inside the world’s oldest central bank, a new debate is raging over a dilemma facing monetary authorities around the globe.

Policy makers at Sweden’s 344-year-old Riksbank and elsewhere are arguing about how far they can look beyond their price mandates and focus instead on economic growth, employment or financial stability when inflation threats are either not pressing or deemed to be passing. This marks a shift from three decades in which central bankers battled inflation, an enemy they understood so well that most made it their singular emphasis in the 1990s.

High Unemployment

Unemployment was 7.7 percent in November compared with 4.7 percent before the 18-month recession began in December 2007.

Aggressive Stimulus

King’s colleagues at HSBC cite aggressive stimulus as the main reason for anticipating a return of about 9 percent next year in the MSCI All Country World Index, which tracks 2,443 stocks worldwide. The index has risen about 12 percent this year, compared with a 9 percent decline in 2011.

Falling Prices

Japanese consumer prices excluding fresh food fell in five of the six months through October, and the LDP’s manifesto says it may legislate to increase cooperation between the government and BOJ.

Stretched Focus

The ECB, traditionally perceived by economists as the most loyal to its inflation target, also faces accusations from within its Governing Council that it is stretching its focus beyond price stability with a proposal to buy bonds of countries that first agree to fiscal goals. Spain is considering whether to sign up.

Safeguard Stability

“The intervention purchases must not be permitted to jeopardize the capability of monetary policy to safeguard price stability,” Weidmann said Sept. 6.

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