From the Irish Times today:
"While the ECB says there is no evidence so far that high oil prices have triggered knock-on inflationary pressure through big wage demands, it says that it is worried and will change rates if needed to fend off what it calls second round inflation"
What I'm puzzled about is, would rate increases not be inflationary in itself, causing me to have increased mortgage payments and so demanding a pay increase etc, coupled with a knock on effect on businesses increasing their cost of borrowings, thus increasing the prices charged to customers, thus increasing wage demands and so on spiralling out of control.
Is increasing interest rates not inflationary in itself?
"While the ECB says there is no evidence so far that high oil prices have triggered knock-on inflationary pressure through big wage demands, it says that it is worried and will change rates if needed to fend off what it calls second round inflation"
What I'm puzzled about is, would rate increases not be inflationary in itself, causing me to have increased mortgage payments and so demanding a pay increase etc, coupled with a knock on effect on businesses increasing their cost of borrowings, thus increasing the prices charged to customers, thus increasing wage demands and so on spiralling out of control.
Is increasing interest rates not inflationary in itself?