Rate hike fear on 3pc eurozone inflation

Aust: Quick, someone tell them we are done and dusted before they get that report out Friday.

Wednesday, November 28 15:17:49


Fears that inflation could reach 3pc in the eurozone this month - a full 1pc above target - have raised concerns that interest rates could be on the rise again in the new year.

Major European banks today revised up their November inflation forecasts for the euro region to as high as 3pc after soaring oil and food prices pushed the rate to 3.3pc in Germany, Europe’s largest economy.
Adding to the concerns, today’s M3 money-supply growth, which the ECB uses as a gauge of future inflation, accelerated to the fastest pace in more than 28 years in October, the bank said today.

Eurostat, the European Union’s statistics arm in Luxembourg, will publish a flash estimate for euro-area inflation on Friday.

While oil prices have edged lower today, crude futures came to within a fraction of the previously unthinkable USD100 a barrel level just last week.

Meanwhile, surging foodstuff and ingredients prices have pushed staples higher in supermarkets throughout the EU, adding to the inflationary pressure.

If they are to have any credibility in their statements then yes rates have to go up. As well as inflation M3 growth is upto a jaw dropping 12.3pc considering their stated target is just 4.5pc.

So the Credit Crisis and the appreciation of the Euro is having no effect on money growth or inflation as the ECB expected they might .

No chance whatsoever of a rate cut people. If anything a rise next month to show that the ECB has not wimped out on its prime directive, the control of inflation

But doesn’t raising interest rates mean that the Euro will be worth more against the dollar and other currencies?

Will this not mean that it’ll be harder for exporters out of the Eurozone?

Is the Eurozone economy not growing very slowly? I thought there’d only be high inflation when there is high growth? How can there be high inflation and low growth?

The possibility of a rate cut does seem to be becoming more remote. But how concerned are the Bundesbank, sorry the ECB with M3 and inflation figures if they have allowed targets slip for so long ?

The ECB is very funny. The USA-originating tsunami is on its way, but instead of evacuating the beach, they’re debating whether to set up a volleyball game, or build sandcastles instead.

Exports to the states are about to collapse eurozone-wide. Anwhere between 10 million and 80 milion jobs will be obliterated, unless rates go to under 1%.

It’s quite likely that the Credit Crisis has had an effect, just not nearly enough to avoid the need to raise rates. Before the crisis broke, rates may well have been heading for 5-6% peak (judging by the growing M3 even after raising to 4%), they may not need all of that now, but still somewhere above 4.5%.


The only possible excuse for not raising now is that the credit crisis hasn’t played out yet, or that oil alone is driving a lot of the inflation, but unless oil pricing is expected to reverse soon (and i don’t think it is) they’ll have to squeeze prices somewhere else to keep the overall number close to target.

The ECB cares not a jot about irish property, and isn’t going to act to preserve a bubble economy reliant on borrowing almost 1/3 of its GDP per year.

Yes, and yes. But the alternative is that too much money is let chase not enough goods and services - aka inflation.

There can be both, aka stagflation.

It happens when there aren’t enough productivity is dropping or at least not improving sufficiently.

Stagflation (having to raise interest rates in declining economic conditions to contain inflation) has been the elephant in the room for some months. And the Bundesbank and German population are the one’s with the memories like elephants on inflation. Push come to shove Germany will win out and rates will rise in the teeth of recession. Weber’s comments matter most in this respect. Ireland will not matter a damn when these decisions are made.

It’s not like the US economy has collapsed entirely (yet anyway) - there’s no doubt that eurozone exports to the US will be down significantly, but they don’t account for that much of eurozone trade or overall activity. Besides local consumption is finally starting to pick up , which will offset some of the export slowdown.

Those kinds of numbers are hardly likely even if all exports to the US stopped overnight, which they won’t. And is it really sensible to sacrifice the euro as a currency just to keep the current US consumption charade running a few more years.

There’s still every chance of a rate cut in 2008, a rate increase in 2008 and the scenario of no changes. It really is that unclear.

They were heading that way for the first half of the year and the pressure to raise them has moderated somewhat.

Yes to the first point but the bloody credit crisis should have resulted in a MARKED moderation or even a reversal in M3 growth by now .

Instead it has ACCELERATED since the credit crisis started in the summer and of course the ECB is running out of time for the M3 tide to turn. M3 is a harbinger of inflation which is what we are seeing on the ground. Increase in M3 is consistent with more inflation in the pipeline next year. Teh rise in the Euro is surprising ineffective…in fact a sudden drop in the euro would increase inflation even if M3 dropped.

While the credit market news is dire the credibility of the ECB will be sorely tested at their next meeting.

I feel they will respond with a rate rise but I also feel thats the end of this cycle of rises and that a drop in M3 growth is inevitable in the near future along with some easing of ECB interest rates. Growth in M3 is inconsistent with a REAL credit crunch I feel.

The Euro will continue to rise ANYWAY I fear.

Jaysus Ted,

That’d mean the dollar might reach 1.75 next year.

That’d be some whopper of a future shock :smiley:

The spike in M3 is quite predictable. The same happened after 9/11. The banks are stockpiling all the cash they can get their hands on to make sure they’re not caught short of funds in the lengthening credit crisis. The ECB are well aware of this and are unlikely to act in the short term on it. They’re the ones pumping the cash in after all. The cash isn’t actually making it’s way into the market as such so won’t actually have an inflationary affect.

Inflation in Germany is of concern. I think ECB will be keeping close eye on these and any similar developments Euro wide. However oil and food are a big contributer to this which figure is a global prob so ECB rate rise is unlikely to have any affect, especially with US dropping rates.

Stagflation (albeit a milder version) is a real global possibility in the next 18 months. Only way out of that is to increase rates to choke inflation at the expense of growth, followed by a sharp drop again to kick start things.

My predictions till June 2008 are 50% for no change, 20% for 0.25% increase, 15% for 2 x 0.25% increases, 10% for 0.25% decrease, 5% for 2 x 0.25% decreases. After that anyone’s guess.

The only reason the ECB is not rising right now is because of political pressure. It’s even taken to trying to talk down inflation. Rising interest rates did not cause this credit crunch, the subprime resets would have happened anyway, since the lending standards were so lax towards in the end there would still have been major defaults, this would still have set the whole chain of event we see in motion.
2007 could have been the year of the subprime lender in Ireland, only the American sub-prime fell first we dodged that particular bullet (but not the others)
Trichet knew the derivates crises was coming and warned about it in Davos this year, indeed the ECB were very quick to react to the crises, however the consequence of this is more inflation.

I reckon they will do this, but there is also a body of opinion against the rise of the Euro.

Unfortunately for us, the USA cannot under any possible scenario fall sharply in a vacuum.

A US fall will immediately reduce overall demand from Asia. Significant sums of Asian demand will shift from the Eurozone to the USA, as the US counterparts to the previous supplier will be so much cheaper.

So our modest but significant trade with the USA (4% of GDP) must be considered with our Asian trade. There’s no way for the EU to scrape through without a very significant rise in joblessness.

Because, if peak oil isn’t actually here right now, it nearly is. And a rapid rise in oil prices will be the factor that could put us into the 50 million jobless zone.

oh man, I’m wiping coffee from my monitor after reading that :laughing:

I am glad to see that the question of families(highlighted above) and the potential disastrous effects that this lending madness is going to have on them is receiving attention at least somewhere in Europe. The sad fact is that many have been given loans that fully stretch two incomes. There will be absolutely no slack to pay extra interest increases.

This is extremely serious. I suppose one solution would be to stretch the loan repayment period out to forty and fifty years. There is going to be wreckage galore. The ironic thing for Irish Families in distress is that half of their mortgage payments is a result of repayment of European Pension Fund investments. How, the Irish Government allowed this to happen completely baffles me no matter which way I look at it! House Prices rose the highest in Ireland. So any potential increase in interest will have a greater impact here. However, I do not know the exact technicalities, but the Securitisation was done on a fixed interest basis; so it could be possible that the banks need not pass on any mortgage increases!

We have an External Debt that is equivalent to 20% of the disastrous USA Debt, and is higher than the Chinese surplus resources on its trading with the rest of the world. We don’t do things by half. The one unknown that might save us is that it is rumored that Bertie has a little nest egg stacked away for a rainy day, and Albert too! The FFs will not let the country down :unamused: