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Skybird · 10-14-22, 06:02 AM

FOCUS writes:
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After a long period of appeasement, the ECB now also sees the dangers of inflation. The protocol of the last meeting, which have now been published, paint a gloomy picture of the situation.

LINK: https://www.ecb.europa.eu/press/acco...fb03f3.de.html

The ECB's Governing Council will hold its next meeting on October 26. It is almost certain that there will be another major interest rate hike. This is because there is no sign of any easing in the inflation situation. The inflation rate for the euro zone is now ten percent.

What the central bankers think about the situation is revealed in the minutes of the last meeting , which were published a few days ago. Several interesting things become clear in them:

1) Not all Governing Council members realize the seriousness of the situation.

Not all members of the Governing Council are behind the latest interest rate hike of 0.75 percentage points. The minutes only mention a "very large number" of Council members who voted in favor. Other central bankers argued for a smaller move. According to the minutes, they considered an increase of 0.5 percentage points to be sufficient to make clear the will to further normalize monetary policy. To be honest, I think that's a hammer. In the current situation with inflation rates, it is hard for me to believe that hesitant action is enough.

2) Even an economic downturn might not be enough.

In addition, it was argued that the nature of the inflation process had changed. Inflation had begun to reinforce itself, so that even a projected significant slowdown in growth would not be enough to bring inflation back to target levels. That doesn't sound good at all either. After all, that's actually the mechanism: lower demand (due to a weak economy) leads to falling prices. So there will be no quick fix to the inflation problem.

3) Inflation can still rise despite falling incomes

Another concern of the euro central bankers fits in with this: according to the minutes, they fear that the impact of the war and the pandemic on the economy's production capacities will be greater and more protracted than expected. If the supply side is more affected than the demand side, they say, this could increase inflationary pressures even as real incomes fall. Translated, this means that if supply and demand fall in equal measure, the inflation problem will not change. There is still too little supply for too much demand - just at a different level. So either supply must increase for the same level of demand, or demand must fall more for the same level of supply. Again, this suggests that only a hard recession can lower inflation.

4) People are losing faith in the ECB

Finally, central bankers talked about how a number of indicators suggest that longer-term inflation expectations are no longer anchored. In July (and again in August), the median inflation expectation for the next three years in an ECB survey was three percent. In other words: More and more people no longer believe that the ECB can bring inflation back down to two percent in the medium term as promised. This is also a cause for concern: Rising inflation expectations are a serious problem, as they can quickly become a self-fulfilling prophecy. Only by raising interest rates further can the ECB make a credible case that it is serious about fighting inflation. So one can only hope that the ECB's Governing Council will not buckle when the recession feared by many becomes visible. After all, what happens if inflation expectations were to become completely unanchored is shown by Turkey as an extreme case. Here, inflation is now over 80 percent.

Inflation problem will not disappear so quickly

All in all, the record makes clear just how big the inflation problem is. And it shows that it will be difficult and painful to get it back under control.
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The German government already glosses over it, expecting a yearly inflation in Germany of 8% this year and 7% next year. Ha! We are at officially 10% right now, I say the real inflation is severla points higher already and since many months, and it will get much worse over the next year.

The rightly much-feared wage-inflation-spiral has started.

Its horrifying to see how history repeats itself and nobody wants to see it. Everybody is busy with spilling ever more kerosin into the fire. The war has not caused this, Corona has not caused this - both are only catalysts speeding up the speed of the process.

Turkey has just preceded us. Their inflation now is 80%. The ECB's policy is not much better than Erdoghan's decisions.Personally I do not want to completely rule out ECB zone inflation rates in the twenties. Its possible. The interest rate rises by the eCb will soon be bropught to a stop and then revers,e when Club Med economies are in danger to collapse. Instead one will buy them a few days of tiem at the price of letting it all collapse later on.

One must hope almost that the recession will rattle everbody right to his bones that he looses his senses, and will kill a huge, huge ammount of the zombie economy there is. Wont get any pretty, but a bloody mess. If there is a chance left still, then here: a bone breaking, earth-shaking recession. The social costs will be accordingly, but we must go through this needle's eye. And even then its not certain the EU and ECB zone will recover. Messy administration for too long time causes messy consequences. Reality knows neither pardon nor sentimentality.

Personally I think realistically seen the battle already is lost.

10-14-22, 06:02 AM	#249
Skybird Soaring Join Date: Sep 2001 Location: the mental asylum named Germany Posts: 40,534 Downloads: 9 Uploads: 0	FOCUS writes: --------------------- After a long period of appeasement, the ECB now also sees the dangers of inflation. The protocol of the last meeting, which have now been published, paint a gloomy picture of the situation. LINK: https://www.ecb.europa.eu/press/acco...fb03f3.de.html The ECB's Governing Council will hold its next meeting on October 26. It is almost certain that there will be another major interest rate hike. This is because there is no sign of any easing in the inflation situation. The inflation rate for the euro zone is now ten percent. What the central bankers think about the situation is revealed in the minutes of the last meeting , which were published a few days ago. Several interesting things become clear in them: 1) Not all Governing Council members realize the seriousness of the situation. Not all members of the Governing Council are behind the latest interest rate hike of 0.75 percentage points. The minutes only mention a "very large number" of Council members who voted in favor. Other central bankers argued for a smaller move. According to the minutes, they considered an increase of 0.5 percentage points to be sufficient to make clear the will to further normalize monetary policy. To be honest, I think that's a hammer. In the current situation with inflation rates, it is hard for me to believe that hesitant action is enough. 2) Even an economic downturn might not be enough. In addition, it was argued that the nature of the inflation process had changed. Inflation had begun to reinforce itself, so that even a projected significant slowdown in growth would not be enough to bring inflation back to target levels. That doesn't sound good at all either. After all, that's actually the mechanism: lower demand (due to a weak economy) leads to falling prices. So there will be no quick fix to the inflation problem. 3) Inflation can still rise despite falling incomes Another concern of the euro central bankers fits in with this: according to the minutes, they fear that the impact of the war and the pandemic on the economy's production capacities will be greater and more protracted than expected. If the supply side is more affected than the demand side, they say, this could increase inflationary pressures even as real incomes fall. Translated, this means that if supply and demand fall in equal measure, the inflation problem will not change. There is still too little supply for too much demand - just at a different level. So either supply must increase for the same level of demand, or demand must fall more for the same level of supply. Again, this suggests that only a hard recession can lower inflation. 4) People are losing faith in the ECB Finally, central bankers talked about how a number of indicators suggest that longer-term inflation expectations are no longer anchored. In July (and again in August), the median inflation expectation for the next three years in an ECB survey was three percent. In other words: More and more people no longer believe that the ECB can bring inflation back down to two percent in the medium term as promised. This is also a cause for concern: Rising inflation expectations are a serious problem, as they can quickly become a self-fulfilling prophecy. Only by raising interest rates further can the ECB make a credible case that it is serious about fighting inflation. So one can only hope that the ECB's Governing Council will not buckle when the recession feared by many becomes visible. After all, what happens if inflation expectations were to become completely unanchored is shown by Turkey as an extreme case. Here, inflation is now over 80 percent. Inflation problem will not disappear so quickly All in all, the record makes clear just how big the inflation problem is. And it shows that it will be difficult and painful to get it back under control. ------------------------------------ The German government already glosses over it, expecting a yearly inflation in Germany of 8% this year and 7% next year. Ha! We are at officially 10% right now, I say the real inflation is severla points higher already and since many months, and it will get much worse over the next year. The rightly much-feared wage-inflation-spiral has started. Its horrifying to see how history repeats itself and nobody wants to see it. Everybody is busy with spilling ever more kerosin into the fire. The war has not caused this, Corona has not caused this - both are only catalysts speeding up the speed of the process. Turkey has just preceded us. Their inflation now is 80%. The ECB's policy is not much better than Erdoghan's decisions.Personally I do not want to completely rule out ECB zone inflation rates in the twenties. Its possible. The interest rate rises by the eCb will soon be bropught to a stop and then revers,e when Club Med economies are in danger to collapse. Instead one will buy them a few days of tiem at the price of letting it all collapse later on. One must hope almost that the recession will rattle everbody right to his bones that he looses his senses, and will kill a huge, huge ammount of the zombie economy there is. Wont get any pretty, but a bloody mess. If there is a chance left still, then here: a bone breaking, earth-shaking recession. The social costs will be accordingly, but we must go through this needle's eye. And even then its not certain the EU and ECB zone will recover. Messy administration for too long time causes messy consequences. Reality knows neither pardon nor sentimentality. Personally I think realistically seen the battle already is lost. __________________ If you feel nuts, consult an expert.