From the "dog chasing its tail-department,"  it is interesting to note that the Riksbank changed the measurement of inflation that they base their policy on a while ago. The measurement they are focusing on now includes cost of credit in a way that includes their own rate-lowering effect. So the more they lower the rate, the lower the inflation and the more they need to lower the rate if they are to keep with their policies. They used to follow a measure which took into account this effect, but not anymore. This is also one of the reasons that they kept raising rates until September last year.





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1 Comment so far

  1. Craig Bowles on April 25, 2009 5:00 pm

    I used to work with Delphi’s Per Holmlund and his father Erlund. We worked on various countries’ economic indexes. Their FIBER office here in NYC still makes indexes for Sweden. If you add the coincident index and CPI growth rates, you can compare them to the Fed rate. Above is tight and below is loose in a nutshell but the average is 85 basis points below for the U.S. With the leading inflation index below the other indexes the last couple of months, it’s bullish for stocks. The worry is that it’s also similar to 2001 when Fed Funds is above the combination. Heck, it’d have to be -8% to be similar to the combination. Also similar is the long leading Japan index is positive and normally acts similar to our leading inflation index. In 2001, we saw the leading inflation index ramp up fast when we had signs of recovery, so the stock rally was stunted and rolled over as inflation worries began to outpace the economic outlook. With these indexes, you get actual measurements of this stuff rather than just overall opinion and feel. I don’t know how you factor in all these alternative measurements though. Should help the leading inflation index. The 1980 CPI calculation is about 10% above the current and 1991 caculation is 5-6% above our current method, so they keep changing. We also have an experimental index that will presumably take inflation down even more when needed. It’s just crazy isn’t it…


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