Inflation in the 13 nations sharing the euro surged to 2.6% in October. This is the highest level in more than two years, according to a first estimate from the EU’s Eurostat data agency. The rate, the highest since September 2005, exceeded economists’ forecasts for 2.3% and was well above the European Central Bank’s preferred level of close to but less than 2%. It also marked a sharp up-tick from September when annual inflation in the euro zone was 2.1%. The jump in inflation comes amid surging oil prices, which hit a record high $93.80 a barrel on Monday.
Eager to keep inflation under control, the ECB has raised euro zone borrowing costs a total of eight times since December 2005, each time by a quarter of a percentage point.
Looks like another 0.25% increase is now possible over the next few months. What looks certain is that the ECB will not be in a cutting mood for some time to come. I suppose we shouldn’t hold our breath for a correction of the predictions, made by various economists and estate agents, suggesting that the next move would be down?
I don’t want to say too much, but as an ex-Banking professional, let me say that banking professionals here at home underestimate the focus the ECB have on keeping the reigns on inflation, it is the mantra which is upper most in policy decisions…of that I can assure you. I believe strongly that we will see a .25% increase in next 3 months, that is unless there is a lag effect in the credit markets on Europe’s exposure to the US SP mess.
You will always be wrong when you ignore the facts
There are quite a lot of people on this forum who are in investment banking. You want the inside track, listen to those people. This is not news. The bloody newspapers and VIs are the only ones who think ECB rates are coming down. We get weekly reports on where rates are going and these are not reports from VIs. These are reports from which a lot of money can either be won or lost. VIs dont “Put your money where your mouth is” when predicting interest rate movements but investments banks do. Also, don’t read the business section of the Indo, read Bloomberg. There is an old saying about newspapers. Read an article from a newspaper about something you know. Is the article accurate? If not then the other articles about subjects which you are not an expert are not likely to be accurate either. The Indo and IT are rubbish newspapers. Don’t believe what they are saying.
Thanks for the lecture on being discriminating in my reading Bertie I assure you I am . I do read Bloomberg I know what a yield curve is and have some understanding of its predictive usefulness. Like I say I hope for all our sakes that rates don’t hit 5% in the Euro area. Because outside of 17% wage increases in government we don’t seem to be seeing comparative wage inflation to match general price inflation.
Expectations of 5% CPI have become entrenched here in Ireland, right back to before the SSIA was launched in 2001 to restrain inflation. Since then, we’ve been importing disinflation from China et al in the form of cheaper clothes etc, yet we’ve still managed to have one of the highest inflation rates in Europe. All this while the rest of the western hemisphere has been enjoying relatively benign inflation. Global inflation is only beginning to crank up, and there’s nowhere for little Ireland to run and hide from that!
Frankly Ireland needs a dose of 6-7% rates to put a stop to all the cute-hoorism and get us back to working for a living and a more reasonable 2-3% CPI (as opposed to HICP).
Private sector wage inflation is relatively benign in Ireland. The construction sector saw wage growth last year of about 4% similar in manufacturing and retail and leisure. I don’t see much in the way of pricing power for the average Irish worker or the average European worker for that matter. I hope that much of the inflation we now see will ease as money supply contracts following the bursting of the various property bubbles across Europe.
Or we could cut the dreaded stamp and get the party started again for a spell and do a proper job in wrecking the economy.
I agree about wage inflation being relatively benign, and 5% IR’s will be painful for many people.
But then all this good-time-Charlie carry-on hasn’t been led on by wage inflation, but by a credit explosion. And to mop up that mess, we need higher rates. I’m not sure that wage inflation does or should enter into the equation. We don’t need to restrain wages (weel, not in the private sector anyway), we need to restrain credit.