evoke said:
inflation seems to be the biggest threat now. in ireland now it is 3.9%. maybe this inflation will cause a market down turn
I think the down turn - whilst inevitable - will not materialise for another few years, possibly 2008 or 2009. The SSIA money should plug the gap left for the next 2 years when people can't borrow at ridiculous rates to buy Plasma TV'S and Spanish Villas.
Unfortunately inflation is beyond our control.
Group 4, in the CPI is made up of Housing, Water, Electricity, Gas and Other Fuels. It makes up 12% of the weighting and it surged 14% in the past 12 months. Of this group over half is energy products... and unfortunately we can't even make a cent of difference to global oil and gas prices.
No other group exceeds annual inflation of 4.8% (transport being at that figure). Interestingly inflation for goods is just 2.6% whilst service inflation exceeds 5%. Clothing and Footwear, Household Equipment, Furniture, and Communications have all fallen in Price in the past year.
So what does all that mean? Inflation is being caused by two things:
1) Energy - we can't change Irelands reliance on imported energy overnight - it will take decades to adapt - and I personally believe oil prices will hit over $100 within three years... infact I HOPE they hit $200 soon! (sorry, but I have a green streak in me)
2) Services - health and education both jumped by over 4% and services in gerneral by 5%. This is demand-pull inflation; too much money (often borrowed) is chaseing too few service providers like cosmetic surgeons, grind schools, landscape gardeners, concerts, etc.
This is all tempered by the continual fall in the price of footwear, clothing and basic goods which has occured in recent years. This will soon come to an end as Chinese labour costs rise and the costs of getting stuff here from there surges... so it is entirely feasible that inflation could soon hit 4%, 5%, 6% even more.
Of course if prices suddenly surge, demand will fall and the demand pull inflation will subside (the increased cost of borrowing will also slow spending). In addition, whilst I expect oil to hit $100 soon, it should then settle between $60 and $80 as current investment in production capacity and refinery expansion in the US come on stream.... So now what? Well inflation will proably continue to rise to 5%+ before falling back as the economic downturn begins.
Check out [broken link removed] for more detail.
Well, theres the museings of an amateur economist.
(P.S. I wrote an essay on inflation in todays Leaving Cert Business exam... it was a lovely paper... just wish I had far more time! I was enjoying it!)