This is the ECB’s monetary policy objective: “Inflation rates of below, but close to, 2%”

Have a look at the graph below and tell me if the ECB is fullfilling it’s objective…

Oops I forgot – the ECB is not targeting a 2% inflation measured by the GDP deflator, but instead is targeting euro zone CPI (HICP) inflation, which of course includes non-monetary factors such as import prices and indirect taxes. You all of course know that it would make much more sense to target the GDP deflator than CPI (if not see here), but then again then the ECB would have to ease monetary policy aggressively…

PS if you wonder why German 10-year bond yields are inching closer and closer to 1% you might want to have a look at the GDP deflator graph once again…

Update: Scott Sumner has a related post.