Europe, Japan CBs Worried Over Lack of Rise in Inflation

While the synchronized global economic expansion is helping get people back into work and forcing interest rates to rise, there is a sense of deja vu brewing about two notable parts of the world.

The European and Japanese central banks are singing similar—and repetitive—policy tunes while facing the same challenges: the best economic growth in years but no sign of rising inflation, and doggedly strong currencies keeping a lid on prices, CNBC reported.

The European Central Bank said on Thursday it is no longer willing to increase the speed or ferocity of its already-reduced monthly asset purchases program if conditions warrant.

But the ECB is still buying €30 billion worth of bonds a month, adding to its more than €2.5 trillion pile each time, with key interest rates still on the floor or negative.

Provided all goes well—and that is not guaranteed—the bond-buying is expected to end sometime late this year, but even then, interest rates won’t likely rise until well into 2019, going by the ECB’s own guidance.

By current expectations, the US Federal Reserve will have raised rates several more times by then, leaving the policy outlook for important central banks overseeing similar consumer-driven economies ever more out of synch.

For its part, the Bank of Japan, which abandoned setting short-term interest rates altogether, is also keeping steady asset purchases that have been in place in various forms for most of nearly 20 years and have greatly intensified recently.

Despite the longest run of economic growth in Japan for 28 years, BoJ Governor Haruhiko Kuroda made clear on Friday that talk in the market of an exit to the program is premature. All of this raises the question: If not now, when?

Looking at core inflation rates in early 2018 and just about any recent year, an outside observer unfamiliar with the mind-bending sums of asset purchases undertaken via Frankfurt and Tokyo would be forgiven for not noticing anything was happening.

The ECB staff outlook for inflation doesn’t have it nearing its close to but just below 2% target for at least another three years, and the latest Reuters surveys of private sector economists suggest the same.

Indeed, for all of the well-founded optimism around the eurozone’s economic boom since late last year, the ECB is no doubt more worried than it can possibly let on that forward-looking indicators suggest it may already be slowing.