The Spiegel today publishes a short article that should report the current rate of inflation. It does it, but it also adds some connotations to the number that are not validated by economic theory or by the institutional framework. This kind of reporting is biased and does not inform citizens, it actively scares them by framing the issue. Here is an excerpt of the short article published today:
Mit der höchsten Rate des Jahres nähert sich der Wert inzwischen wieder der Warnschwelle von zwei Prozent an, bis zu der die Europäische Zentralbank (EZB) ein stabiles Preisniveau gewahrt sieht.
Let me translate that as literally as I can:
With the highest rate of the year the value is getting closer to the alert threshold of two percent, up to which the ECB sees a stable price level guaranteed.
This is wrong because of two things. First, there is no “alert threshold” of two percent. The Spiegel is making this up. Here is the ECB on the subject of price stability:
The definition of price stability
While the Treaty clearly establishes the primary objective of the ECB, it does not give a precise definition of what is meant by price stability.
The ECB’s Governing Council has announced a quantitative definition of price stability:
- “Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%.”
The Governing Council has also clarified that, in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term.
So, over the medium term “it aims to maintain inflation rates below, but close to, 2%”. There is no “alert threshold” whatsoever of 2%. Inflation can be above, below or just 2% as long as over the medium term it is below, but close to, 2%. The more important disqualification of the Spiegel article is that the ECB aims for an inflation rate in the euro area, not for national inflation rates of EMU members. Hence if inflation in Germany is 3% it is not a reason to worry about anything as long as the euro area inflation rate is not above 2% – over the medium term! Again: there is no “alert threshold”.
What we have here is biased journalism, in this case with an agenda of scaring the public into believing that a) inflation is bad, b) inflation is close to some dangerous “alert threshold” and c) that the ECB should think about acting (which is implied). I cannot believe that the journalist at the Spiegel or wherever the article is coming from does not know about the role of the ECB’s inflation target (the paragraph I quoted has been added to a news agency article, it seems. See almost the same news at Die Zeit.). Hence my conclusion is that the authors at the Spiegel are trying to fool the public and they accept that the truth will be a collateral damage. And by the way: under the article you find a link to a discussion in the forum of the Spiegel entitled: “Is Europe threatened by a mega inflation?”. The debate was started on March 2nd of 2010. We haven’t seen a mega inflation in the euro area yet. Actually, this is what we have seen:
Actually, the inflation rate in the euro area is just below, but close to, 2%. There is no reason why this should not continue over the medium term. After all, there are many downside risks to the world economy apart from the austerity mess in Europe, like tax increases in Japan (maybe) or financial crisis in China (maybe).
However that may be, this is the kind of reporting the German public gets in 2013 on economic issues by the mainstream press, just before the elections. While Southern Europe is going down the drain, Germans are scared about inflation.