Graph of the Week

Created: 2000-08-31
Last Modified: 2000-09-11
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Graph of the Week: Recent European Inflation

J. Bradford DeLong

August 2000

(and the Economist)

  • Inflation in Europe is creeping up, even though unemployment remains distressingly high.
  • Given the past attitude of those who are Europe's central bankers, this upward creep in inflation will soon be followed by attempts to raise interest rates, reduce demand, and increase unemployment.
  • This is surely unfortunate. The costs to having 3% per year rather than 2% per year inflation are extremely low. The benefits from another year of strong economic growth are very high.
  • The only argument for rapid interest rate increases is that a failure to choke off inflation immediately will cause a collapse of confidence in central banks' commitments to relative price stability. But someone should tell those who make this argument that the 1970s are over, and that central banks' long-run commitment to avoiding high inflation is unquestioned.

Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax

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