The threat from deflation has been a regular theme for discussion amongst the economists linked to the Green New Deal group over the last few years and rightly so. Deflation might appear to increase the value of wages, but the effect is to encourage people to defer investment in the belief that there will be a financial gain from doing so. The consequence is a drain on economic activity that would compound current woes and just at a time when what the economy needs most of all is investment on a sustainable future.
The ECB was right to act.
The Bank of England is instead clearly thinking about when rates might rise here because the pressure of the pocket of house price inflation in London. That’s profoundly worrying when what we need are new housing, taxes to take the heat out of over-valued existing housing and long term stable and low real interest rates to encourage investment. Push too hard and we could easily end up with what the ECB fears.
It might be worth noting that we’re talking about two different currencies here, each with their own monetary policies, their own fiscal policies and thus their own money supplies and inflation rates.
You know, that everything is in fact different?
Which is why every free market economist has been screaming that the ECB should have lowered interest rates some 5 years ago and also why they’re all pondering when the UK will raise them.
Because, you know, they’re different?