Is inflation in Europe too high already?

Some people are now talking about the possibility of stagflation in Europe, as Germany's inflation estimates have risen to 3.3 percent. Inflation needs to be watched closely, of course, and it is never encouraging when its levels move above the official comfort zone. But, from a historical perspective, when EU countries like Portugal, Spain and Sweden all stay below 4 percent and EU-27 projections are well below 3 percent (2.4), sounding the alarm bell might well be premature.

Just recall Ken Rogoff's speech documenting that "globalization and de-regulation have been powerful forces supporting the political economy of low inflation." There might be more regulation in the coming years and some countries will grow less than had been expected. But how does the situation today look when compared with the 1990s?

Some seem to forget that world inflation was around 30% in 1990-4. Between 2000 and 2007, by contrast, prices around the world rose no more than 3.8% per annum on average. That is, inflation fell EIGHT FOLD. The industrial economies will probably not venture far from the 3% benchmark. Rising prices in the developing world should, by all means, be a source of concern. But the European Union, including Central Europe, seems to be in a reasonably good shape. Even Hungary, in spite of having a bad year, will probably do well in 2009.