2008-06-05 EU News Highlights


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Highlights:

France’s Unemployment Rate Drops to 7.5%, Insee Says

Scary low rate for the ECB.

German 2008 Tax Revenue to Grow More Than Expected

Fuel for the hawks, Germany’s unemployment is too low for them as well.

ECB May Keep Benchmark Rate at Six-Year High

For sure. And there will be discussion of hikes.

Spain April Industrial Production Contracts on Euro’s Advance

The ECB wants this kind of slack, but still not enough for them.

OECD Official Urges Fed, ECB to Put Rates on Hold

Yes, as they sure aren’t going to cut as Bernanke originally hoped.

They never bit on his bait to start an international race to the bottom with rate cuts/inflation.

The Fed thought the rising euro and the loss of demand to the US, as US exports rose, would cause the ECB to blink and cut rates.

Instead, the falling dollar and ripping US inflation has caused the Fed to start talking about hikes.

In the mainstream paradigm, the ECB was right in not cutting while the Fed is coming under fire for cutting aggressively into a triple negative supply shock, letting inflation expectations start to elevate, and risking a much larger slowdown bringing inflation down from much higher levels.

European Bonds Fall on Speculation ECB to Highlight Inflation


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2008-05-30 EU News Highlights


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Highlights

European Inflation Accelerates More Than Forecast as Oil Surges

Note the concern over inflation expectations in the text below.
That’s what has turned the Fed as well.

German Retail Sales Unexpectedly Dropped on Inflation
Weber Rules Out Changing ECB’s Current Inflation Goal

While the US economic memory from the depression is unemployment lines, the German memory is wheelbarrows full of money.

Eurozone unemployment is down to about 7% which frightens the inflation hawks, as per the below reports.

Trichet Says Pushing Down Inflation Is ECB’s Biggest Challenge

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Articles

European Inflation Accelerates More Than Forecast as Oil Surges

(Bloomberg) European inflation accelerated faster than economists forecast this month as oil prices jumped to a record, adding to what European Central Bank President Jean-Claude Trichet has called policy makers’ “biggest challenge.”

The inflation rate in the euro area rose to 3.6 percent, matching a 16-year high, from 3.3 percent in April, the European Union statistics office in Luxembourg said in a statement today.

Economists had forecast a 3.5 percent rate, according to the median of 36 estimates in a Bloomberg survey.

The ECB, which aims to keep consumer-price growth below 2 percent, said yesterday there are signs inflation expectations “have been trending up recently” and it’s imperative that they remain contained. The Frankfurt-based bank celebrates its 10th anniversary this weekend, having failed to meet its target for the last eight years.

“There has been a sharp deterioration in the inflation picture,” said Simon Barry, an economist at Ulster Bank in Dublin. “Our base case is the ECB is on hold for now, but the inflation risk has increased and there’s no room for complacency.”

Separate figures published by the statistics office today show that unemployment in the euro area remained at a record low 7.1 percent in April.

Crude Oil
Crude oil prices have doubled in the last 12 months and reached a record $135.09 May 22. Food commodities have also surged in the last year, boosting how much consumers are paying for staples such as bread and milk. Wheat has gained 45 percent in the past year and corn has surged 51 percent.

Soaring prices have led to protests in Europe and companies and consumers expect prices to continue to rise. A European Commission index of manufacturers’ selling price expectations increased this month, while consumers’ outlook for their personal finances deteriorated. Greencore Group Plc, the world’s biggest maker of prepared sandwiches, this week said it’s been passing on cost increases to customers by raising its prices.

In France, fishermen have blockaded ports in the past week to protest against the increase in oil prices, while a group representing bus companies in Ireland said it may have to stop school runs because of the cost of gasoline.

Key Rate
The ECB has kept its key rate at a six-year high of 4 percent to counter inflation even as the economy of the 15 euro nations cools. The central bank is concerned that wages will increase to compensate for the higher cost of living, threatening a wage-price spiral.

“We’re looking at below trend growth” in the euro area, said Barry, the Ulster Bank economist. “But for the ECB to consider cutting, that would require a pretty sharp weakening in the economy and nothing so far is heading that way.”

(snip)

Some companies are raising salaries. German wages increased the most in 12 years in January, the statistics office said last month. Germany’s Ver.di union in March negotiated a settlement for as many as 2.1 million public-sector staff that is worth 8.9 percent over two years.

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Weber Rules Out Changing ECB’s Current Inflation Goal

(Bloomberg) European Central Bank council member Axel Weber said revising the ECB’s definition of price stability would jeopardize the bank’s credibility at a time when fighting inflation is “of the essence.”

“I see no compelling reason why a temporary, albeit protracted, rise in energy and food prices should give rise to a discretionary change in the eurosystem’s stability norm,” Weber said at a conference in Frankfurt today. “It would risk unanchoring inflation expectations at a point in time where their solid anchoring is of the essence.”

The ECB defines price stability as keeping inflation just below 2 percent “over the medium term” and has struggled to meet that goal since taking charge of monetary policy in 1999. While economists including Joachim Fels of Morgan Stanley say the ECB should be open to changing its target, President Jean-Claude Trichet said May 8 he won’t consider it “for one second.”

“The present price hikes are a timely reminder that, when it comes to inflation, complacency is out of place,” said Weber, who is also head of Germany’s Bundesbank. “We cannot rest on our laurels where credibility is concerned.”

`Prepared to Act’
The ECB’s 21-member governing council is scheduled to hold its next assessment on interest rates on June 5.

“Over the past decade, the Eurosystem has shown that — if necessary — it is prepared to act in a firm and timely manner,” Weber said. “We will continue to do so over the next decades in order to maintain price stability.”

Surging energy costs pushed inflation to 3.6 percent in May, the most since 1992, from 3.3 percent in the previous month, the European Union’s statistics office in Luxembourg said today.

Economists forecast a 3.5 percent rate, according to the median of 36 estimates in a Bloomberg survey.

Surging food and oil prices “represent the latest, and arguably the most worrying, disturbance in a series of substantial upside price shocks,” Weber said.

Inflation expectations, as measured by French inflation-indexed bonds, rose to an all-time high of 2.46 percent on May 28 from around 2.1 percent two months ago.

A surge in inflation expectations close to 3 percent for this year “is hardly surprising,” Weber said. “Market participants and the general public are likely to readjust their short-term inflation expectations as soon as they observe inflation returning to a lower level.”

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Trichet Says Pushing Down Inflation Is ECB’s Biggest Challenge

(Bloomberg) European Central Bank President Jean-Claude Trichet said the central bank’s “biggest challenge” is to push inflation just below 2 percent in the medium term, according to an interview with Bild newspaper.

“We have to be careful that current price shocks of food and oil don’t translate into price increases of other goods and exaggerated wage agreements, thus triggering a general inflation and wage wave,” Trichet told the newspaper in the interview published today. Bild translated his remarks into German.

Price stability “is and will always be the most important aim of the ECB,” Trichet told the newspaper. Regarding the global financial turbulence, the ECB continues to be “very alert and ready to act” if needed, he said.

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Germany is the only large member of the euro zone where the measure of economic sentiment remains above its long-term average of 100.0. It rose slightly to 103.0 in May from 102.8 in April.

French economic sentiment in May fell below the 100.0 long-term average for the first time in more than a year, declining to 99.8 from 103.1 a month earlier. Sentiment remains well below average in Italy, Spain and Greece.


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2008-04-07 EU Highlights

Today’s headlines not conducive of a rate cut.

And the only thing the ECB sees that’s keeping inflation from being a lot worse is the strong euro.

ECB’s Liebscher Sees Risk of Wage-Price Spiral, Kurier Reports
German Output Unexpectedly Increases on Construction
French Trade Deficit Shrinks to 2.8 Billion Euros on Exports
Spanish House Prices Rising Slower Than Inflation
ECB’s Quaden Calls Belgian Inflation `Rather Bad’
German BDB Banking Association Says Economy Is `Robust’

2008-03-07 EU Highlights

European News Highlights:

ECB’s Weber Sees `Little’ Room to Cut Interest Rates

rising MNOG (minimum noninflationary output gap) as inflation rises at current levels of GDP. (see below.)

ECB’s Noyer Says Globalization Has `Ceased’ to Curb Inflation

import prices are rising there even with the strong euro, implying if the euro wasn’t as strong import prices would be that much higher.

Euro Strength Reduces ECB’s Surplus

US beggar thy neighbor policy is robbing demand from the eurozone

German Industrial Output Rises, Led by Construction
Italian Light Commercial Vehicle Sales Climb 14% in February

If GDP holds up with inflation this high and rising, the ECB then has to engineer a larger output gap.

ECB’s Weber Sees `Little’ Room to Cut Interest Rates

by Simone Meier and Gabi Thesing
(Bloomberg) European Central Bank council member Axel Weber said the bank has little room to lower interest rates with the economy operating near full capacity and oil prices at a record.

“The output gap is such that it doesn’t give me a lot of comfort that it will lead to a strong disinflationary effect in the period to come,” Weber told reporters in Oslo today. Coupled with external price shocks such as surging oil and food prices, “there is very little room to maneuver.”

The ECB yesterday kept its main lending rate at a six-year high of 4 percent to curb inflation even as the euro’s appreciation and slower U.S. expansion threaten to curb economic growth. Weber said today that there’s an “unusual amount of uncertainty” on both the outlook for growth and inflation.

“The current policy stance in the euro area has to be judged as contributing to achieving our medium-term objective of price stability,” Weber said. “Weaker growth prospects do not pose sufficient reason to expect a damping of inflationary pressures in the foreseeable future.”

The ECB yesterday revised up its inflation forecast for this year to about 2.9 percent, which would be the highest annual average rate since 1993, according to International Monetary Fund figures. The bank also predicted inflation would average about 2.1 percent in 2009, breaching its 2 percent limit for a 10th year.

“Due to increases in unit wage costs, core inflation rates are projected to equally exceed the 2 percent margin over the course of 2008,” Weber, who is also president of Germany’s Bundesbank, said. “And even taking into account a forecast horizon beyond 2008 gives no sign for relief.”

Weber said the bank will “do what is necessary” to quell inflation risks.

Economic growth in the 15-nation euro region will show a “gradual recovery toward potential rates” of around 2 percent in the second half of 2008, he said.

And, of course, that’s a bad thing when inflation is too high to begin with.

2008-02-20 EU Highlights

Should the Fed turn it’s attention to inflation, it will find itself way behind that curve.

The US cpi is about 100 bp higher than the eurozone cpi’s, including the UK where rates are north of 5%.

With US inflation where it is, the mainstream calculation for the appropriate ff rate is probably north of 7%.

The way the mainstream now sees it, the more the Fed cuts to get ahead of the ‘economy curve’ (whatever that is), the further it gets behind the inflation curve.

At this point if may not take much in the way of economic ‘improvement’ to redirect the Fed’s attention. A sign of a housing turn might be sufficient.

And with a general inflation underway, housing prices will go up as well, regardless of weakness, due to cost pressures, much like the late 70’s.

Highlights:

European Government Bonds Fall as German Producer Prices Surge
ECB’s Garganas Says There’s `Intense Concern’ About Inflation
Spain’s Exports Grew as Economy Accelerated in Fourth Quarter

2008-01-18 EU Highlights

With the US Fed cutting aggressively, and now a reasonably large US fiscal package a near certainty, the mainstream will see increase in US demand as further support for world prices.

They have no economic theory to support this.

In fact, mainstream theory would more likely be inclined to call this policy subversive, as it sees inflation as the primary risk to optimal long term growth and employment. And they see the real costs (in terms of lost output) to bring down inflation, once allowed to elevate, as far higher than any possible near term gains from adding to demand in the short run.

Highlights:

EU’s Almunia Says Inflation ‘Is on the Rise’ Due to Oil Prices
ECB’s Weber Doesn’t Expect Inflation Far Below Ceiling in 2009
Liebscher Sees Prices Easing by Year-End
ECB Says Banks Expect Funds Squeeze in Coming Months
Trichet discounts productivity gain
German Economy on a Solid Foundation in 2008: Finance Minister
French Growth to Be About 2.25% in 2008, Sarkozy Spokesman Says
Spain House Price Inflation Slowed to 4.8% in Fourth Quarter
Spanish Mortgage Lending Growth Decelerates to 15% in 2007
Portugal’s Dos Santos Says Slowdown May Be Worse Than Forecast

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