Inflationary Interest Rate Increases?

Irish savers can love it and Irish borrowers can hate it but that doesn't make much difference. Irish problems will carry as little weight with the ECB if interest rates start to rise as they did when interest rates started to fall.
 
Great Expectations!

"unless governments start to print money to pay for them"
Governments do not print money. they raise money to pay for programmes either through taxes or borrowing. Either way there is no increase in the money supply. It is only when a central bank buys securities(usually shortterm govt. debt) with new reserves that the money supply in the banking system is increased. This happens under the guise of "monetary operations". The Irish central bank issues a very detailed monthly update including information on monetary operations.
The best example of inflationary expectations is in the asset markets. About 1999 it was a widely held view that, since stocks had outperformed in the longrun, one should just buy stocks regardless of price. Historically the rise in stock prices is in large measure due to inflation so this view certainly represented at least in part an inflationary expectation. Subsequent performance has shown that at least in the short to medium term this may not be true.
Today of course it's the property market that has everybody enthralled. I would regard the rise in property prices as completely due to inflation. Everybody knows that bricks and mortar are the best investment so even if prices are high you should still buy and of course rent is dead money.
Talk about inflationary expectations!
 
"First of all, why bother controlling inflation in the first place? Because it alters peoples' economic and financial behaviour. I would strongly argue that the asset price inflation in the stockmarket in the 90's and in the property market has greatly altered behaviour(for the worst!). See some of the posts on the property investment page. Therefore Central Bank's should target the price of everything money buys(stocks bonds property etc) and not just some narrow index like the "core" CPI."

This is an excellent point and is actually the crucial issue in the world economy since 1993. The central bank's only concentrate on a small basket of groceries and ignore the inflation in financial assets and property thereby ignoring the destination of most of the the excess liquidity they have created. They then tell us inflation is under control ignoring the ever growing elephant in the bedroom. However the danger is now very real that the inflation in financial assets and property will switch to this small basket of groceries the central banks examine so much.
 
Trichet appears to be sending one of his clearer messages about an ECB rate rise on December 1st.

Is he bluffin' or wha ?


http://news.ft.com/cms/s/8c3bc38c-5840-11da-90dd-0000779e2340.html
 
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