The euroarea has an inflation problem. That goes without saying. But as the MP strategy review kicks off in September, I’m reminded of a decomposition of inflation by country from nearly a year ago in the chart below.

It shows the deviation by the Big 4 from a 2% core price level target. It shows how Germany drifted below this notional price level target from the start, France from about 2004. But during this time, Italy was close to target while Spain overshot.

And so inflation wasn’t too far from the inflation goal.

Since 2011, however, both Italy and Spain drifted beneath this level, while there has been minimal offset in Germany and France.

In other words, the euroarea has an inflation problem. But that problem is nearly 2 decades old. The real question is: how to generate inflation in Germany and France? END.