That's a great find. Sure is interesting how the BLS calculates hedonic adjustments on the "quality of airfare" in order to arrive at a fall of 3% vs. a 3.5% gain. More BLS fudging.
Draghi throws ECB door open to money printing as global prospects dim By John O'Donnell and Eva Taylor FRANKFURT Fri Nov 21, 2014 10:16am EST (Reuters) - European Central Bank President Mario Draghi threw the door wide open on Friday for more drastic measures to prevent the euro zone from sliding into deflation, promising to use whatever means necessary as China also acted to boost its sagging economic growth. With many fearing the euro zone could be heading for a Japanese-style lost decade of deflation and recession, Draghi's remarks were reminiscent of when he pulled the bloc back from possible disintegration in 2012 by promising to do "whatever it takes" to back the common currency. Painting a bleak picture of the state of the 18 countries in the euro bloc, Draghi stressed that "excessively low" inflation had to be raised quickly. In a blunt message, he said there was now no sign of improvement in the months ahead and the ECB would pump more money into the euro bloc if its current measures fell short. "We will do what we must to raise inflation and inflation expectations as fast as possible," he told an audience of bankers in Frankfurt. "If ... our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases," he said. Annual euro zone inflation was 0.4 percent in October, far short of the ECB's medium-term target of just below two percent. Draghi's comments, which many read as inching very close to possible buying of government bonds, received a warm reception from Italian finance minister Pier Carlo Padoan, who said ECB action was welcome to revive economic growth in the euro zone. The ECB said on Friday it had started buying asset-backed securities. Along with purchases of covered bonds, a secure form of debt often backed by property, it is trying to encourage banks to lend and revive the economy. Draghi said earlier this week that if the current measures were not enough, or if inflation expectations deteriorated further, the ECB could widen its purchases to include debt of euro zone governments, a strategy which German policymakers strongly oppose. Economists expect bold ECB action. "Draghi all but announced that the central bank will step up monetary easing soon. Mr Maybe has become Mr Definitely," said Nick Kounis of ABN Amro. But it is unclear how much such a move can help Europe as the prospects for the global economy and one of its chief engines of growth, China, grow ever more uncertain. China cut its benchmark interest rates for the first time in more than two years on Friday to stimulate economic growth, which is on track for its lowest annual rate in 24 years. [ID:nL3N0TB3VW] Japanese Prime Minister Shinzo Abe has called snap elections, seeking a mandate for his struggling "Abenomics" revival strategy after the economy unexpectedly slipped into recession. The euro zone grew 0.2 percent in the third quarter, giving an annual rate of 0.8 percent, according to a flash estimate from the European statistical agency Eurostat. Of the major national economies, Italy has already fallen back into recession. GERMAN SILENCE Draghi had said further measures could involve large-scale purchases of government bonds - the kind of quantitative easing that the United States, Japan and Britain have already used. Such a step in the euro zone would, however, encounter stiff resistance from the bloc's largest economy, Germany. Bundesbank President Jens Weidmann, speaking shortly after Draghi at the same event, avoided talking about the issue entirely. The two have clashed before on their views on the future policy path. "We can't be constantly commenting on one another," Weidmann told reporters as he left the event. Draghi's comments nonetheless pushed 10-year government bond yields in Italy IT10YT=TWEB, Ireland IE10YT=TWEB and Austria AT10YT=TWEB to new all-time lows and sent the value of the euro down below $1.25. His tone was contrasted to when he spoke to European lawmakers earlier in the week and pointed to early signs of improvements. "Over shorter horizons, however, indicators have been declining to levels that I would deem excessively low," he said. As the euro zone economy has nearly stuttered to a halt, the ECB is trying to unblock lending by flooding the market with billion of euros, buying reparcelled debt and giving cheap loans directly to banks. But should these steps not be enough to bring inflation back to the medium-term target, Draghi said the ECB would act. "This is why the Governing Council has tasked ECB staff and the relevant Eurosystem committees with ensuring the timely preparation of further measures to be implemented, if needed." Draghi's promise two years ago to save the euro brought down the borrowing costs of euro zone governments such as Spain and Italy, which were reaching unaffordable levels at the time. Some people doubt quantitative easing would achieve much, as the borrowing costs of euro zone governments have already fallen to record lows. "It has never been cheaper for countries such as France to borrow," said Michael Heise, the chief economist of Allianz. "Buying state bonds could influence the price of state bonds, but wouldn't have much impact on the economy." http://www.reuters.com/article/2014/11/21/us-ecb-draghi-inflation-idUSKCN0J50Q320141121
Draghi has been talking about the prospect for QE for several months now. I did note that the market launched itself to new highs again on the news, though. And on China's RR cut.
''We will do what we must do to raise inflation and inflation expectations as fast as possible.'' he told an audience of bankers.
here is a follow up for Piezoe From the economist. Which should finally disabuse Piezoe of his notion the Fed did not create electronic money out of thin air when it credited trillions of dollars of reserves and place them in member accounts. http://www.economist.com/blogs/economist-explains/2014/01/economist-explains-7 To carry out QE central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased—hence "quantitative" easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The idea is that banks take the new money and buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which in turn boosts investment. Today, interest rates on everything from government bonds to mortgages to corporate debt are probably lower than they would have been without QE. If QE convinces markets that the central bank is serious about fighting deflation or high unemployment, then it can also boost economic activity by raising confidence. Several rounds of QE in America have increased the size of the Federal Reserve's balance sheet—the value of the assets it holds—from less than $1 trillion in 2007 to more than $4 trillion now.