Inflation accelerates to 5% in June … king31.htm

The thing I like about this site is the speed of posting new information. Well done to all

What does he mean inflation is “made in China”? Can someone please explain this to me?

Does China control our money supply, or do we do it here in Europe at the ECB? Come on, we have been printing money for fun in Euroland. It sounds like he is trying to lay our mess at someone else’s door.

A serious question here; Are GDP figures adjusted for inflation?

He is describing real growth as if he expects it to be lower than headline GDP growth by some factor of inflation. I assumed that headline GDP figures had already factored that in.
When the ESRI forecast -0.5% or whatever GDP or GNP growth for 2008 is that a nominal figure? :question: Or is he just being more bearish than the ESRI?

Can’t answer fable’s questions and just have a couple more for the economists on here! I think I’ve asked this before, but why in Ireland is an index used that means that inflation is seen to increase when interest goes up? I assume that as a saver with no debts, the return I should be looking at to beat inflation is in actual fact the figure of 3.9, not 5. Or am I misunderstanding? Although as the savings are in the main being accumulated in order to acquire a currently deflating good seomtime in the future, maybe I don’t need to worry overly much if they’re not giving a high real rate of return…

I’m not an economist but in answer to the China question - as Chinese manufacturing costs were decreasing, we were importing goods from China at lower and lower prices. This had the effect of lowering the inflation rate in Western economies over perhaps the past 10/15 years.

The disinflationary impact has now faded as China runs into certain restraints e.g. the supply of skilled workers is drying up. This is pushing up inflation in China and increasing the cost of Chinese manufactured products which are imported into the West.

On the statistics, CPI includes interest rate changes & is used by many as it is argued to give a “true” representation of inflation felt by the man on the street - remember that renters are seen as deviant perverts for the most part, all proud patriotic Irish people will buy a house as soon as they get their communion money. The Europe wide index is the HICP index which strips out the effect of interest rate rises and so forth. I have some sympathy for the former position.

Their is more too it than that - I work in china half the year and its getting very difficult over there

  1. The constant push to invest in quality have forced most mainstream chinesse MFG to automate many funtions - using western equipment. This is limiting the labour content and pushing up prices
  2. Effeciency sucks - the cost to transport and logistics there is being strangled by growth. Just getting around Shanghai now is a Job in itself
  3. RMB is rising
  4. Imported workers can no longer survive on 1000RMB a month (this was the benchmark that they did not want to break - its broke)
  5. They are really struggling with the slowdown - even though its a slowdown from a crazy level, most companies are not yet adapted to deal with varying demand. (two of our Contract Manufacturers have refused to renew contracts without QTY guarantees - which we cannot give in this envioroment)

I would not be at all surprised if we are out of china by end of 08

I read the above and the one thing that jumps into my mind is…if interest rates were unchanged for 12 months until last week, how/why would mortgage interests costs have risen so much and contributed to the inflation figures ?

Is this all to do with the numbers coming off introductory rates and hitting the “real” rates, or is it indicative of the growing gulf between the ECB rate and that charged by the banks to cusomters on variable mortgages ?

GDP figures are always always quoted in real terms i.e. taking inflation into account. So 1% growth in GDP coupled with 4% inflation does not mean that the economy actually shrank by 3%.

Technically, they take the nominal GDP and use a figure called the GDP deflator to convert it into real GDP.

This is the bit I find interesting, and I am trying to square the circle.

According to the NCB “affordability index”, mortgage payments as a percentage of “household incomes” has fallen significantly over the last 12 months.

The CSO say mortgage interest costs increased by 17% over the last 12 months. And note that this is supposed to factor in the effect of lower capital requirements to fund a mortgage due to lower prices.

An alternative affordability index then would be to discount the 17% increase in mortgage interest costs by the increase in household incomes, say 7% over the last 12 months? That should mean affordability should have deteroriated by 10%. Or mortgage interest costs as a percentage of incomes would have increased from 30%, say to 33% ( = 30 x 1.17/1.07).