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Submitted by Louis on
Thanks. As mentioned earlier in this discussion, I agree that central banks should not try to keep headline inflation unchanged if oil prices rise. However, sensible central bankers will try to avoid that higher fuel prices lead to large second round effects that may drive up "core inflation" to too high levels. In my understanding that is what the PBC is trying to do and what the governor referred to. I do not think I agree with your view that lower European interest rates will reduce european inflation. Lower ECB interest rates will stimulate demand and weaken the euro exchange rate. Both will put upward pressure on euro-denominated prices. That-- perhaps, only perhaps--a weaker euro-$ rate reduces $ denominated commodity prices is of little consolation to the ECB.