Interest Rates

The_Conductor

Germany's annualised inflation rate rose from 1.1% in October to 1.5% in November and would have reached 1.8% if cheaper fuel prices had not been included in the calculation. VAT rates are to rise from 16% to 19% on the 1.1.07- which will add considerably to headline inflation rates.

France's headline inflation rate rose .1% in November to 1.6%- on the back of large rises in food prices (which went up almost 3% month on month), this offset a fall in fuel prices.

Manufacturing price index rose an annualised 2.9% in the year to the end of November.

The above info is from Reuters and IIB.

Think the writing is on the wall folks......

godtabh

smccarrick wrote:

Think the writing is on the wall folks......

In what way? I assume you mean a rate rise?

Bee07

I've no idea what you mean..

miju

i think what he means is

tiiiimmmmmmbbbbbeeeerrrrrrr :-)

interest rate cycle won't be stoppin at 3.75% and could potentially hit 4.5% but if those figures keep up we're defo looking at a 4% ecb base rate which again knocks a massive chunk of the maximum a person can borrow as well as hitting existing mortage owners for even more cash completely negating the recent budget tax relief ( indeed the day after the budget announcement the ECB took some of it back straight away when they raised it .25% )

Victor

I saw comments that another .25% is expected in the first quarter of next year and that 5% is seen as a normalised rate.

godtabh

I read after the budget that there would be rise after (i.e the next day) and one more in Jan and that would be it for the year. I think it was on these boards that I read it

miju

there was a rise the day after the budget , though to be honest no-one knows for sure what the ECB will do

however the money markets have already priced in a .25% increase so we can take that one as a gimme , normalised rates are somewhere between 4-5% (depending on what report / analyst you believe). theres nothing to stop trichet and co to keep the raising cycle going if inflationary data they get warrants it after all if it boils down to the stability of germany , france etc versus ireland we're never gonna come out on the winning side as much as we irish like to think so

faceman

The ecb have suprised alot of people with some of their actions. however its pretty clear that they cant continue with rate rises without damaging some countries economies. even the IMF have advised the ECB to exercise caution.

Action other than rising rates needs to be exercised here. e.g. Price controls etc.

The rate rises are not working. And squeezing other economies to try control the german and french is not the answer.

chump

faceman wrote:

The ecb have suprised alot of people with some of their actions. however its pretty clear that they cant continue with rate rises without damaging some countries economies. even the IMF have advised the ECB to exercise caution.

Action other than rising rates needs to be exercised here. e.g. Price controls etc.

The rate rises are not working. And squeezing other economies to try control the german and french is not the answer.

Rate rises are needed to curb inflation - to protect us. What would you like for them to do? Let inflation get out of control?

eclectichoney

to be honest, apart from the .25 increase in feb/march (probably the latter based on the words used at the last meeting) we may well see a pause at 3.75, depending on how thw us slowdown pans out. at any rate i can't see things going above 4% in 2007/2008.

The_Conductor

With the exception of the housing market, which is decidedly in the doldrums, all factors in the US are pointing at further rises there (the last Fed decision to hold rates was not unaminous).

Trichet's recent comments in Europe have been interpreted by Economists as preparatory groundwork for increases above the .25% widely expected in February (and indeed already priced into products in several banks).

Then again- if anyone was sure about these things, and consistently correct, they would be billionaires......

chump

http://www.bloomberg.com/apps/news?pid=20601087&sid=akMWSrXvAKyE&refer=home

worth a read

faceman

chump wrote:

Rate rises are needed to curb inflation - to protect us. What would you like for them to do? Let inflation get out of control?

er, did you read my post? So interest rates are the only way to control inflation????

The_Conductor

I started this thread specifically to talk about interest rates, and not necessarily other manners or means of combating inflation. In your post you suggested price controls as a manner, other than the manipulation of interest rates, of controlling inflation. The ECB's primary task is the control of inflation- and they have to focus on the bigger picture rather than small outposts in Portugal and Ireland when devising their strategies.

Interest rates were far too low for the intermediate countries, including Ireland, over the past 6-8 years, principally as a manner to attempt to stimulate the economies of the larger European countries, which were in the economic doldrums. Inflation was not an issue- in some extreme cases negative inflation was even mooted as a possibility unless domestic consumption could be stoked sufficiently to drive those economies forwards.

This cheap money is what has driven our housing market- and is something that people here have come to expect as a god-given right. They should have no reasonable assumption that this is a right or something that will continue.

Vis- price controls. That is a non-runner from the word go. How do you impose price controls when the price of raw commodities, and indeed the quality and supply of them, vary significantly throughout the community? The very idea of price controls would have countries such as Sweden and the UK (who aren't even in the Euro) threatening to withdraw altogether from the EU. The Commission has zero appetite for attempting to police something such as this in any case. As the numerous WTO fights which are ongoing demonstrate- even were they to try, it would be a mess.

Interest rates, and the consequential supply of liquidity, is the principle weapon in the armoury of that agency tasked with control of inflation- the ECB. Its mandate was based on that of the Bundesbank, which was viewed at the time of its conception as a bastion of good economic practice on which the new institution should be based. That Germany should subsequently be cautioned for flouting these self same rules is ironic.

Whether you like it or not, interest rates are the main method of combating inflation- and the maximum ceiling of 2% as specified in the ECB's founding charter, is uncomfortably close to where current prevailing rates are at.

chump

faceman wrote:

er, did you read my post? So interest rates are the only way to control inflation????

I certainly did... did you read mine?
Surely

"Action other than rising rates needs to be exercised here. e.g. Price controls etc." doesn't constitute a viable alternative?

You can read a little about price control here (http://en.wikipedia.org/wiki/Price_control)

And I'd be interested in hearing how, as a member of the EU and as a partner in its single market, Ireland should go about price control?

We are in effect heading in the complete opposite direction to the one you tout - where competition & free market values are key.

Er(go) your suggestion is infantile.

is_that_so

Some of that IMO some price control is built into our national agreements and that damn benchmarking. As for the ECB well they're just a clone of the old Bundesbank whose sole obsession in life was inflation. The ECB's obsession is Euro inflation so we are in for more increases next year.

faceman

Price controls are one example. inflation is ireland isnt causing the ECB to rise rates, i was referring to other eu countries.

The german gov is knowningly going to cause rates to increase with the massive vat increase due. Surely this can be reviewed, be it the amount or the timing.

The SSIA was another example of how a government can influence inflation at a particular time without the need for rate rises. Granted the payout of the scheme had to be managed carefully.

Im no economist but im no gobshoite either.

conor_mc

faceman wrote:

The SSIA was another example of how a government can influence inflation at a particular time without the need for rate rises. Granted the payout of the scheme had to be managed carefully.

I fail to understand what you mean by managing the SSIA payout. As far as I can tell, you saved for five years and got your money at the end of that period, to do with as you please. And you speak of the payout in the past-tense when, by-and-large, it has hardly even happened yet.

Wait until the flood-gates of SSIA payouts open in June 2007 before judging the "management of the payout"... whatever that means.

miju

i think what faceman means conor mc , is that the SSIA scheme is / was a temporary measure by the govenrment to attempt to control inflation by taking money out of the economy and by then staggaring the payouts with two different dates a year apart so it will have as minimum effect on inflation

only problem is they didn't bank on cheap credit going on for so long coupled with businesses greed in trying to their mits on as much SSIA cash as possible which is one of the reasons (when housing market is not considered) that inflation has still be growing unabated for so long

conor_mc

miju wrote:

i think what faceman means conor mc , is that the SSIA scheme is / was a temporary measure by the govenrment to attempt to control inflation by taking money out of the economy and by then staggaring the payouts with two different dates a year apart so it will have as minimum effect on inflation

To be fair, maybe faceman meant to say "has to be" rather than "had to be".

I accept that the SSIA had the desired effect back in 2001/2002 when it began to draw cash out of an overheating consumer sector. I'm not so sure the maturity dates being a year apart was by design, I think it was more by default as a result of the scheme being open for a year.

Given that the vast majority of SSIA's will mature in May 2007, we could be in for significant inflationary pressure in Q3/Q4 2007. Unless of course, we, as a nation, use our SSIA's sensibly and reduce our soaring private debt.

miju

conor_mc wrote:

Unless of course, we, as a nation, use our SSIA's sensibly and reduce our soaring private debt.

this may well be the case as all research / surveys seem to suggest that the vast majority of SSIA holders will be saving them / reducing debt rather than splurging their cash , however as to what percentage are saving is up for debate