Increase in Inflation recently?
- Thread starter Silvius
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Globalisation and open borders mean labour shortages are a thing of the past.
Higher inflation will not be matched by increased labour rates for the foreseeable
I agree. That's why flooding the developed world with money hasn't led to labour price increases as the labour which produced the goods is in a different place. It has led to capital price inflation since, simplistically put, the capital is not in a different place.
Yes there was a bit of inflation in Ireland around 2007, but did the ECB come in with their fire hoses to quell Irish inflation rates then,? there was no inflation in Germany remember, the German banks were lending to Irish banks then. They came in way too late to stop the run away lending that was going on, but they also crystallized the collapse of the banking sector by raising those rates and preventing the banks from rolling over their bonds. If anything they were 5 years too late. Can't see them doing that again especially as this time the debt is mostly sovereign bonds.
The ECB responds to inflation in the eurozone. Inflation was at the 1% level in the 1990s; in the early 2000s it rose above the ECBs target rate of 2%. In 2008 it hit 3.28% so the ECB increased interest rates. Inflation fell to 0.29% in 2009. https://www.rateinflation.com/inflation-rate/euro-area-historical-inflation-rate/. So monetary policy (as per Paul Volker) works. What's not to like?
It worked for Paul Volker alright but caused a recession in the US and a depression in Ireland throughout the 1980s. Jean Claude Trichet almost collapsed the euro a decade ago when he tried to stay rigidly to the inflation targets. I doubt they will risk that again, they will talk the talk alright , pretend inflation is not there by not putting their measuring probes into hot places. The main issue is not prices per se but production capacity they need to ensure that all hands are on deck in the factories and farms to keep stuff produced. The issue is no longer demand shock (solved by money printing) but supply shock ( unfortunately houses cannot be printed).
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This had nothing to do with the ECB. Irish banks operated essentially a scam by using their investors' capital as collateral to borrow euro on the cheap and then lend them on to naive investors to buy overpriced property. It was just one big bet on inflation or 'bigger fools' coming along to pump up property prices to allow the initial investors to sell on at a profit.
It definitely showed that central banks will now use interest rate increases as the preferred policy instrument to reduce inflation; and not wage and price controls that were previosly used.
Trichet didn't nearly collapse the euro, but it exposed poor policy making in certain countries, e.g. Greece, Ireland, etc.. The euro really isn't a currency; it's more like a souped-up Bretton Woods agreement. If you want to be in the euro you have to run your ecconomy in a certain way, e.g. according to the Growth and Stability Pact etc.. If you don't do this, you run into problems. The ECB's mandate is price stablity in the eurozone - not to bail out negligent economies. Trichet increased interest rates; inflation subsided. Result!
Other banks and by issuing bank bonds, for example.
Yes, but all of it is under the aegis of the eurozone monetary system in which the ECB tasks itself with maintaining price stability.
This is from their website
"The ECB monitors developments in the banking sectors of the euro area and the EU as a whole, as well as other financial sectors, to identify any vulnerabilities and check the resilience of the financial system.
It carries out these tasks together with the other central banks of the Eurosystem and the European System of Central Banks.
The emergence of possible systemic risks in the financial system is addressed through macroprudential policies. The overarching goal of macroprudential policy is to preserve financial stability."
Just because someone does a job badly that doesn't mean the job shouldn't be done. If the argument is that the Euro/ECB/EU should be unwound because they blundered their way into the 2008 crash then by the same logic we should get rid of our public health system. Personally I'd like to see both remain but run properly.
That's not the argument at all.
I am in favour of a single currency, further integration with Europe.
However, it has to be on the basis of a system that is workable and accountable.
Yes, so improve it. I'm all in favour of that.
Exactly. The question being, how to improve it.
You have suggested Fiscal Union earlier. I'm not against it, but how it is structured would be key.
I would not like the Irish government to become as fiscally redundant or peripheral as the Irish Central Bank has become peripheral on the monetary side.
Inflation has surprised to the upside in US , they were expecting 3.5% but actually hit over 4%. Wages at the low end are rising because employers in the service industry now have to pay more to entice workers back to work in restaurants and bars after getting used to the government cheques, It will be the same here given the level of our PUP payments here probably more so, therefore starting wages will need to be at least 100euros above this. Anecdotal evidence that employers are getting it very difficult to coax workers back to work, 30,000 construction workers were still on PUP last week even though construction industry supposed to be fully open with a massive backlog in construction.
The markets did not like it one bit , they are worried that the central banks will be forced to raise interest rates sooner to try and stop run away inflation even though that will be bad for government borrowing
The markets did not like it one bit , they are worried that the central banks will be forced to raise interest rates sooner to try and stop run away inflation even though that will be bad for government borrowing
the oil price is continuing to rise, looks like there is no stopping it this time as the oil majors are now being restricted and are not bothering to drill for more oil due to the onerous regulations. Meanwhile Russia and Opec are unencumbered by these regulations and will take advantage of the restrictions on Western oil companies, they will be back in control of the oil price. Obviously they do not control demand but if oil gets more expensive the Chinese will just increase their coal consumption, the price of australian coal has shot up recently as the Chinese are back buying with a vengeance.
If anything points to inflation it is energy, looks like we are repeating the mistakes of the 1970s except this time we are embargoing the oil rather than the arabs .
If anything points to inflation it is energy, looks like we are repeating the mistakes of the 1970s except this time we are embargoing the oil rather than the arabs .
There is not much inflation in my day to day grocery food-shopping, Inflation is all around us at present once you take grocery food shopping out,
It may take a little while longer for inflation to be passed on through price increases but inputs have gone up in lots of areas,
It may take a little while longer for inflation to be passed on through price increases but inputs have gone up in lots of areas,
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