Anand said that fiscal measures should now be brought in not only at the level of national governments but also at regional and local government level.
“As expected the ECB have moved the eurozone further into negative rate territory and increased the scale of stimulus to spur on the modest recovery in the region and raise the stubbornly anchored rate of inflation,” Anand said. “As with the recent similar moves at the Bank of Japan, this has been welcomed neither with a material response from the level of the currency nor a strong vote of confidence being expressed in equity markets.”
Anand noted however that cause and effect relationships are “notoriously difficult to divine in complex systems” so it is possible that in the future the recent move by the ECB is seen to have had a positive effect on the real economy.
“The truth is that the contrary perspective is equally valid which is that such measures do little to stoke genuine confidence in the stability of the economy and risk conflicting with the assertion that systemic risk in the banking system has been contained even under stressed macroeconomic conditions,” he explained.
Another observation worth making in Anand’s view is that a recovery in reported inflation is arguably a function of time. Items in the basket which have dragged most significantly on the published data, energy and food, have stabilised and are showing signs of modest recovery, he noted.
“Meanwhile, as in other developed markets, real wages are showing clear signs of improvement,” Anand continued. “This is obviously happening at an uneven rate which is typical for a region of such heterogenous economies but the above suggests that as these effects work through, inflation will return towards the long term average, possibly much sooner than consensus expectations.
“One of the most enduring lessons of Warren Buffett is that investment, inactivity can be the most value positive course of action. I wonder if an ECB arguably too prone to intervention might benefit from this advice,” he added.
