Skip to main content

ECB warns for inflation danger.

 

ECB
The European Cent­ral Bank’s pres­id­ent has warned of the risk of a «tit-for-tat dynamic» between com­pan­ies and work­ers that pushes up profit mar­gins and wages, increas­ing price pres­sures as both groups try to avoid a hit from higher infla­tion.

Christine Lagarde said yes­ter­day that the ECB’s recent increases in bor­row­ing costs were «only start­ing to take effect now», and signs that infla­tion was per­sist­ing at high levels meant it had to «bring rates to suf­fi­ciently restrict­ive levels to damp demand».

«This makes a robust strategy going for­ward essen­tial. So far, we do not see clear evid­ence that under­ly­ing infla­tion is trend­ing down­wards. Instead, we see two forces push­ing under­ly­ing infla­tion in dif­fer­ent dir­ec­tions».

Lower energy prices are push­ing infla­tion down, but buoy­ant domestic demand is off­set­ting this, as com­pan­ies raise profit mar­gins and work­ers seek higher wages in tight labour mar­kets.

The euro climbed after Lagarde spoke, rising 0.3 per cent to a five-week high against the dol­lar of $1.080.

Echo­ing this, Ger­many’s eco­nomic coun­cil warned yes­ter­day that fin­an­cial mar­ket instabil­ity could under­mine efforts by cent­ral banks to fight infla­tion, as it pre­dicted price growth of 6.6 per cent for Ger­many in 2023.

Lagarde called for a «fair bur­den­shar­ing» between work­ers and com­pan­ies to dis­trib­ute the losses caused by higher infla­tion, which she said would bring wages and price pres­sures down. But if both groups «attempt to uni­lat­er­ally min­im­ise their losses», it could push up profit mar­gins, wage growth and prices all at once. «The risk of such a ‘tit­for-tat’ dynamic is also heightened by the pro­spect that labour mar­ket tight­ness will linger,» she said.

www.sba.tax

Labels:

Comments

  1. Charles23 March 2023 at 12:38

    If Lagarde is waiting on companies and workers to be fair, she is mistaken. This is not happen. Companies want bigger profits and workers want to be paid more. Both don't care as much about the harm they are doing to the economy and how their actions will increase prices. They care about themselves.

    ReplyDelete
    Replies
    1. Alvin23 March 2023 at 14:02

      You need to come up with measures that encourage the right behavior and make the wrong one unwanted. This is how you solve this not by asking everyone to be "fair". It will never work.

      Delete

Post a Comment

Cloud Bookkeeping

US FED rate rise.

  The US Federal Reserve officials have indicated that they plan to resume increasing interest rates to control inflation in the world's biggest economy. During the June meeting, the Federal Open Market Committee reached a consensus to keep interest rates stable for the time being to evaluate whether further tightening of policy would be necessary. However, the majority of the committee anticipates that additional rate increases will be required in the future. The minutes of the meeting have recently been made public. According to the minutes, most participants believed maintaining the federal funds rate at 5 to 5.25 per cent was appropriate or acceptable, despite some individuals wanting to raise the acceleration due to slow progress in cooling inflation. Although Fed forecasts predicted a mild recession starting later in the year, policymakers faced challenges in interpreting data that showed a tight job market and only slight improvements in inflation. Additionally, officials gr...
Post a Comment
Read more

EU business slide.

  S&P Global’s flash eurozone composite purchasing managers’ index, a key gauge of business conditions for the manufacturing and services sector, fell 1 point to 47.1, figures showed yesterday. That is its lowest level since November 2020 and the fourth consecutive month below the crucial 50 mark separating growth from contraction. One of the few bright spots in the survey was that companies in all sectors reported a slight easing of cost pressures, price growth and supply chain constraints. However, prices charged for goods and services still rose at the sixth fastest rate since such data started in 2002. Jobs growth increased marginally from October but remained low compared with the past 18 months. Following a few months of falling price pressure in manufacturing and services, the October print shows an overall stabilisation said Jens Eisenschmidt, chief European economist at Morgan Stanley. However, German businesses, at the hub of Europe’s energy crisis, reported that manu...
1 comment
Read more

EU debt reduction

  Brussels wants to give EU capitals extra time to curb their debts and create space for public investment as part of an overhaul of the EU’s deficit rules .  The European Commission would table a proposal at the end of the month to reform the Stability and Growth Pact ,  under which it would work out multi-year ,  country-specific plans with capitals for getting their debt burdens under control ,  EU officials said .  The proposals come as member states face mounting fiscal burdens as they spend hundreds of billions of euros sheltering businesses and households from the energy crisis .  Under the new blueprint ,  the commission would propose a four- or five-year plan to an EU member state to get its public debt burden on a credible ,  downward trajectory ,  officials said . The national fiscal plan would need to pass a debt sustainability analysis and be approved by the commission and EU council .  The new regime would ditch an EU ...
Post a Comment
Read more