American writer William Faulkner once said that “the past is never dead.” But as far as inflation is concerned, it actually spends 12 months haunting everyone before vanishing completely.
When that finally occurs, the effect can be large, obscuring what’s really going on in the economy.
Take price gains in the euro area: They jumped 0.7 percent in January to 1.8 percent, causing much consternation among those who tend to worry that inflation can easily get out of hand. But almost half of that change, according to European Central Bank’s calculations, is due to the fading out of an oil-cost spike 12 months ago.
Without the impact of price history, inflation in the 19-nation euro area would be pretty stable, and pretty low, this year.
