4 February 2015

Will QE cause inflation, or is there a ‘statute of limitations’?

● ECB President Mario Draghi in response to being asked whether the recently announced programme of quantitative easing, intended to boost the ailing eurozone, might eventually lead to damaging price inflation for certain asset classes:
I think the best way to answer to this is, have we seen lots of inflation since QE programmes started? Have we seen that? And now it’s been quite a few years since they started ... And somehow this runaway inflation [predicted by some] hasn’t come yet.

What I'm saying is that certainly the jury’s still out. But there must be a statute of limitations. Also for the people who say that there will be inflation, yes, when, please? Tell me, within what?
(Mario Draghi, press conference 22 January 2015)
Mr Draghi is correct to point out that there has been zero impact so far on reported inflation numbers from American, British and Japanese QE programmes.
As to whether there is a period of time after which it’s safe to assume the risks have disappeared, I’m not so sure.
If you look at the Great Inflation of the seventies, you could argue that the associated expansion of the money supply began in the sixties. It required the trigger of a specific exogenous shock, in the form of the 1973 oil crisis, to turn the fuel of excess money into the fire of an inflationary spiral.
In the absence of such exogenous shocks, and while global demand remains depressed (the prices of oil and copper, two key barometers, are currently well below their 2009 post-meltdown highs), the fuel may be capable of remaining in a state of dormancy until – who knows? – perhaps indefinitely?

Oxford Forum should be given funding.