Monday, March 31, 2008

EMU Inflation Reach New All-Time High

According to the so-called flash estimate from Eurostat, Euro area inflation rose to 3.5% in March, the highest ever since the introduction of the euro in 1999. There are two interesting aspects of this. First of all, this is likely only the first in a series of reports showing rising price inflation in March. When the numbers from for example the U.S., Britain, Sweden are released we are likely to also see pick-ups in inflation there too. The reason for this is the sharp rise in oil prices between February and March as well as the continued impact of the rise in the price of food commodities.

Secondly, the implication of this will certainly< be that ECB interest rate cuts are out of the question in the coming months. Indeed, influential ECB board member Axel Weber recently expressed a preference for raising interest rates. Weber is of course long known to be a hawk, and given the weakness of some parts of the Euro area, that does not appear likely to happen. But it is probably not less likely than a cut at this point.


Anonymous Anonymous said...

Any thoughts about Gary North's latest comment that the trend in the Adjusted Monetary Base (from 6% YOY growth in '03 to 1+% YOY growth today) signals that the Fed is deflating?

Sorry - I was unable to find an e-mail link, so I used your comments section. Feel free to delete it or move it.

12:08 AM  
Blogger stefankarlsson said...

Thanks for bringing it to my attention that somehow my emailadress had disappeared from by blogger page.

As for your question, I've already answered that question once, see here.

8:13 PM  
Anonymous newson said...

have you any idea what criteria the fed uses when deciding the amount of physical currency issued? if banks did decide to stop loaning to customers, preferring to re-build balance sheets by riding the yield-curve, could the fed go zimbabwe and print greenbacks day and night?

9:01 AM  
Blogger stefankarlsson said...

Newson, the amount of physical currency issued is usually decided by the public's demand for physical currency. That is why the amount of currency in circulation (and therefore also the monetary base) soared during the Great Depression as people because of a distrust of the banking system wanted to have money in the form of notes and coin instead of deposit money.

However, if the Fed decides that it wants to expand the money supply at a time when banks are reluctant to lend and wants to build up reserves, it could perform open market operations and monetize the national debt by buying up government bonds-or for that matter mortgage backed bonds or stocks. The Fed will pay for this by paying money to the accounts of the holders of these assets, which will result in an expansion of the monetary base and the money supply.

10:45 AM  
Anonymous newson said...

don't look now, but have now incorporated the shostak/salerno money definition into their new money aggregate page.

it's handy to have all the aggregates superimposed for comparison, however.

6:04 PM  

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