Inflation Watch

Crushing levels of debt in advanced countries

2011-09-24T20:21:00.001-07:00

2011-08-17T20:55:00.001-07:00

A rate rise likely in China

2011-02-01T19:02:00.000-08:00

China is likely to raise rates

China’s government, increasingly worried about soaring inflation, plans to continue tightening its money supply and will probably raise interest rates again within the month. China’s consumer price index rose 4.6 percent last year, but analysts said that underestimated inflation.

That is the forecast of economists and bankers with knowledge of policy makers’ views, who insisted on anonymity because of the political and diplomatic sensitivity of Chinese monetary policy.

Inflation lately has caused friction in China’s mighty export machine. Now, Beijing’s efforts to fight inflation, through higher interest rates and tighter restrictions on bank loans, could begin to slow segments of China’s domestic economy slightly — particularly the breakneck pace of investment in new factories, office buildings and apartment complexes.

Manufacturing costs

2011-02-01T19:01:00.000-08:00

More evidence of rising prices...

The manufacturing sector grew at its fastest pace in nearly seven years in January and signs of inflation jumped more than expected as a recovery in the world's biggest economy gained traction.

The Institute for Supply Management's manufacturing survey released on Tuesday also showed employers were thinking about ramping up hiring, one of the weak spots of the recovery so far, and helped push U.S. stock prices to their highest since June 2008.

Friday's closely watched U.S. payrolls report is expected to show the economy added jobs for a fourth straight month in January but still not at the rate needed to make a big reduction in unemployment.

Manufacturing costs are rising

2011-02-01T18:59:00.000-08:00

From Reuters...
Costs to manufacturers are rising around the world, data showed on Tuesday, the latest evidence of growing inflation pressure from commodity prices as the global recovery gathers speed.

Inflation has hurtled to the top of the policy agenda in emerging markets and in Europe. But in the United States rising commodity prices are unlikely to lead to higher consumer prices and prompt the Federal Reserve to drop its easy-money policy.

Rising food and fuel prices have hit poorer countries and are one of the factors behind massive anti-government protests in Egypt and in Tunisia

The Fed: what can it do?

2011-01-23T09:09:00.000-08:00

There are no good options available for the Fed......
There are any number of ways to say it, but it all comes down to the same thing. The Federal Reserve has reached the rock and a hard place position when it comes to the Federal Reserve Rate.

According to the US Treasury, the cost of paying the interest on the national debt was 413 billion dollars in 2010. Despite the fact that our national debt at the time reached 13.5 Trillion, that was not a record, it was barely an effective rate of 3.05%. Just 10 short years earlier, our effective rate on the national debt was 6.19% and the Federal Funds rate was 3.5%.

So by lowering the Federal Funds rate, we cut a like amount off the effective rate of the interest on the national debt. In fact, since 2000, the effective rate of interest on the national debt has fallen from 6.38% to just 3.05%. During the same period, the national debt rose from 5.6 trillion to 13.5 trillion. (Figures based on Sept 30, end of the federal fiscal year).

2008-06-21T09:09:00.001-07:00

Just keep on printing the money

2008-02-20T12:21:00.000-08:00

...and you will have inflation.

LONDON (Thomson Financial) - Money supply growth in the UK unexpectedly accelerated in January, keeping alive rate-setters' concerns about medium-term inflation pressures, provisional figures from the Bank of England showed. In its first release of the money supply data for January, the central bank said M4, a broad measure of money supply, rose 1.3 pct from December for a 12.9 pct yearly rise.

The US has an inflation problem

2008-02-20T12:19:00.000-08:00

...is there anyone at the Fed paying attention?

With stock prices and credit market turmoil appearing to stabilize, at least momentarily, from Wall Street's volatile New Year's debut, anxious investors have found a new worry: inflation.

Crude oil futures settling above $100 a barrel for the first time Tuesday reminded consumers and businesses that they are paying more for many essential items.

Evidence has mounted that a U.S. recession is under way or in the wings. Typically, recessionary conditions prompt stable or lower prices. But commodities, from copper to soybeans, have been marching steadily higher this year, led by oil.

Bernanke - the inflationist

2008-02-20T12:14:00.000-08:00

US inflation is surging ahead, while the Fed cuts rates. If want a recipe for an economic disaster, then Bernanke is your cook Despite what people might think, he is cooking up some more interest rate cuts

US inflation may stall rate cuts

Energy prices have fuelled the surge in inflation US consumer prices rose by 0.4% in January, official figures show, more than many analysts had forecast. According to the US Labor Department, the main drivers of the price growth were food and energy costs.

The figures come as the US Federal Reserve has been slashing interest rates in an effort to kick-start slowing economic growth. Analysts say that inflation concerns may hamper the Fed when it comes to cutting rates again in the future.

ZIMBABWE'S inflation soared to a record high of 26,470.8 per cent

2008-02-03T13:08:00.000-08:00

It is Mr. Inflation - Robert Mugabe.....Nobody does it better...

ZIMBABWE'S inflation soared to a record high of 26,470.8 per cent as the economy contracted by 6 per cent, the central bank said yesterday – dealing a blow to president Robert Mugabe's government ahead of the general election next month.

The veteran leader will seek another five-year term on 29 March, against the backdrop of an economic meltdown widely blamed on his political and economic policies.

Gideon Gono, the governor of the Reserve Bank of Zimbabwe, said that inflation galloped to 26,470.8 per cent year-on-year in November 2007, from 7,982.1 per cent in September. There were no figures for October.

The jump in inflation prompted the central bank to increase interest rates to 1,200 per cent from 975 per cent.

Hong Kong money supply growing at over 10 percent

2008-02-03T13:07:00.000-08:00

Keep printing that money and before you know it, Hong Kong will have inflation....

HONG KONG (XFN-ASIA) - Hong Kong's M1 money supply in December rose 1.2 pct from November and was up 10.4 pct from a year earlier, the Hong Kong Monetary Authority (HKMA) said. Unadjusted M2 and M3 in Hong Kong dollar terms decreased by 8.7 pct and 8.6 pct respectively month-on-month, but were both up 18.1 pct on a year-on-year basis, the HKMA said. Total deposits with authorised institutions decreased by 3.8 pct in December, with contraction in Hong Kong dollar deposits exceeding the expansion in foreign currency deposits.

Ron Paul on oil

2008-02-03T13:05:00.000-08:00

Ron answering some questions on fuel, renewable energy and US intervention in the middle east.

Inflation in the Gulf running at 10-12 percent

2008-01-28T19:35:00.000-08:00

That dollar peg just isn't helping.....

DUBAI: Gulf inflation could accelerate to fresh highs this year as the oil producers with dollar pegs cut interest rates fuelling borrowing. Inflation in Saudi Arabia may average six per cent this year, compared with 4pc last year, US investment bank Merrill Lynch said in a report.

Price rises in the UAE - the second-largest Arab economy - may climb to a 20-year high of 12pc this year, compared with 10pc last year, Merrill said.

"Inflation is likely to stay on an increasing trend in the short term," the bank said. "With heated domestic demand, pegs to the sliding US dollar not only import inflation and fuel domestic liquidity but, more importantly, they also import easing monetary policy."

The pegs, to which Kuwait is the only exception, force the oil producers to track US monetary policy at a time when the Federal Reserve is cutting interest rates to stimulate the economy. In contrast, Gulf economies are surging on oil prices that have more than quadrupled in the last six years, spurring inflation.

More crisis talk

2008-01-25T23:10:00.000-08:00

Some interesting comments on the upcoming mortgage bond insurance crash.

Taiwan money supply growing

2008-01-25T22:21:00.000-08:00

Look east or west - it is the same story. Central banks are printing too much money

TAIPEI (XFN-ASIA) - M2, Taiwan's broadest measure of money supply, rose 1.36 pct year-on-year in December after expanding 2.78 pct year-on-year in November, the central bank said.

M1B money supply rose 1.07 pct year-on-year in December, compared with a 4.34 pct rise in November, it said.

M1B is derived from M2 minus quasi-money, or time deposits, time savings deposits, and foreign-currency deposits placed by enterprises and individuals in monetary institutions, as well as postal savings deposits.

ECB - still talking tough on inflation

2008-01-25T22:20:00.000-08:00

....but actions speak louder than words.

FRANKFURT (Thomson Financial) - European Central Bank Governing Council member Axel Weber said the bank is ready to take pre-emptive action if long-term expectations on inflation threaten to divert effectively from the ECB inflation targets, according to his Boersen-Zeitung interview due to be released tomorrow.

'We are ready to act preemptively if long-term inflation expectations threaten to divert sustainably from our inflation goals,' he said in the interview.

Money causes inflation

2008-01-23T12:08:00.000-08:00

It is not hard to understand really: too much money chasing too few goods.

M4 money supply has increased 12.3% in the United Kingdom in December from the same month last year, seasonally adjusted, M4 increased 25.0 billion pound from November, 1.5%, according to figures by the Bank of England.

December's 25.0 billion increase surpasses the average flow for the previous six months, at 12.8 billion pound according the Bank.

M4 lending increased by 17.3 billion, or 0.8% seasonally adjusted in December, while the 12 months average increased by 13.0% from 12.7% in November. Excluding the effects of securitisations, M4 lending rose by 24.6 billion pound, 1.0%seasonally adjusted. On the year, M4 lending rose 14.9%, from 14.3% in November.

Inflation down under

2008-01-23T11:53:00.000-08:00

From the Age....

Inflation shock puts pressure on rates

AUSTRALIA'S 3 million home buyers are likely to be hit by another interest rate rise — the third in six months — after inflation rose to its highest level in 16 years.

Most economists believe the Reserve Bank will act to lift rates when its board next meets on February 5 — unless global share markets continue to dive.

Inflation figures released yesterday were far worse than expected, as higher petrol prices, bank charges and housing costs pushed the underlying inflation rate up by 1.05% in the December quarter, and 3.6% for the year. Petrol prices alone rose 14.3% for the year.

Bank of England waking up to inflation danger

2008-01-23T11:50:00.000-08:00

From the Press Association.....

Inflation fear keeps rates on hold

Inflation fears saw the Bank of England policymakers make a near-unanimous vote to hold interest rates at 5.5% this month, it has been revealed. Minutes of the Bank's last rates meeting show the outlook for inflation "had worsened markedly" amid soaring oil and food costs and with energy price hikes on the horizon.

Eight of the nine members on the Monetary Policy Committee (MPC) voted against a back-to-back cut in rates earlier this month following the quarter-point reduction in December.

The MPC said it feared rate decreases in two successive months might suggest the Bank was "focused more on stabilising demand than meeting the inflation target".

Gold prices trade near recond high

2008-01-11T09:22:00.001-08:00

When inflation picks up, people turn to gold.

(Bloomberg) -- Gold traded near a record, platinum reached its highest ever and silver rose to a 27-year peak as a weakening dollar increased the allure of precious metals as alternative investments.

The dollar was headed for a third weekly loss against the euro on bets benchmark borrowing costs in the U.S. will fall below those in Europe for the first time in more than three years this month. Investors also bought the metal on concern record oil costs will fuel inflation and as a haven from credit market turmoil, said Juerg Kiener from Swiss Asia Capital Ltd.

Gold climbed to $897.90 an ounce, its highest ever, and traded at $894.84 at 4:17 p.m. Singapore time. The metal has risen 7 percent this year as the dollar declined 1.4 percent against the euro.

Bullion soared 31 percent in 2007, its seventh straight year of gains, as supplies from South Africa, the world's biggest producer, dropped to the lowest in 84 years.

Brazilian inflation accelerates

2008-01-11T09:19:00.000-08:00

From Bloombergs:

Brazilian consumer prices had their biggest monthly increase in more than two years in December, raising concerns the central bank will be unable to lower interest rates further in Latin America's biggest economy.

Consumer prices, as measured by the IPCA index, jumped 0.74 percent in December, the biggest increase since October 2005, the national statistic agency said. The gain, fueled by food prices, was almost twice the 0.38 percent increase in November and pushed the annual rate to 4.46 percent

When will the Fed start to talk about inflation risks

2008-01-08T11:30:00.000-08:00

It has been some time since anyone at the Fed seriously discussed the dangers of inflation. Today, Plosser gave a talk. However, he is still talking interest rate cuts. Meanwhile, inflation is raging.

Reuters - The risks of higher inflation in the face of slower economic growth will pose a challenge for monetary policy this year, Federal Reserve Bank of Philadelphia President Charles Plosser said on Tuesday. Monetary policy today can do little to change a period of below-trend growth expected in the first half of 2008, Plosser told the Main Line Chamber of Commerce in a speech.

Still, "there are risks to the downside of even weaker economic growth." If such weakness is prolonged that "may require further adjustments to policy," he said, hinting at the possibility of further cuts in benchmark interest rates.

"At the same time we also face risks of higher inflation," he said, and the Fed must remain "vigilant" on inflation and "be prepared to act as necessary."

Trichet talks tough

2008-01-06T09:36:00.000-08:00

Trichet can talk the talk, but can he walk the walk. The next ECB interest rate decision will decide the question. Inflation is well above target, and interest rates need to go up.

AFP — European Central Bank President Jean-Claude Trichet said Saturday that the bank was ready to act to control inflation -- five days ahead of an ECB decision on whether to hike eurozone interest rates.

"The ECB's governing council stands ready to counter upside risks to price stability, in line with its mandate," the French bank chief told a meeting of Germany's centre-right Christian Democratic Union (CDU) party in Wiesbaden.

"The governing council has decided to continue to pay great attention to financial market developments," he added, according to a copy of his speech on the ECB website.

Trichet, who will preside over the first meeting of the ECB governors this year on Thursday, added that "looking ahead, the inflation rate is expected to remain significantly above two percent in the near future, and it is likely to moderate only gradually in the course of 2008."

Inflation hit three percent in the eurozone in November, well above the ECB target figure of just under two percent, and the bank fears that it could contaminate the rest of the economy -- notably via higher salary settlements, which it calls "second-round effects."

UK PM will cut public sector pay

2008-01-06T09:25:00.000-08:00

UK Prime Minister will force real wage cuts on public sector workers. This year, public sector pay increases will be below the rate of inflation, currently running at 4.3 percent. Pay restraint will "allow" the Bank of England to reduce rates.

Unfortunately, Brown has this all upside down. Tighter monetary policy reduces inflation; keeping public sector wages down just creates a bitter disaffected workforce.

LONDON: The British government's move to limit public sector pay increases has helped keep the country's economy stable as it enters a year of global economic turbulence, Prime Minister Gordon Brown said Sunday.

Brown said the world faced a difficult year ahead, but that he was "cautious but positive" about Britain's economic prospects based on its record of low inflation, high employment and economic stability over the past decade.

Pay restraint now will prevent inflation running out of control — as it has happened in the past when oil and food prices spike — and will permit interest rates cuts to ease the burden of mortgage payments, Brown said.

"I want to pay the police more, I would like to pay the nurses more, I would like to pay all these major public sector groups more," Brown said on British Broadcasting Corp. television.

Britain's police union is campaigning for the right to strike after Brown's government staggered a 2.5 percent pay increase, effectively reducing it to 1.9 percent — which is below the annual rate of inflation.

UK money supply

2008-01-04T15:36:00.000-08:00

The Bank of England are still turning the printing presses, pouring out all that easy money to fire up inflation. In November, U.K. M4 money supply grew 0.5% from the prior month. Annual growth for November was revised up to 11.7% from 11.1%. In October, money supply growth stood at 11.8%.

M4 lending, excluding the effects of securitisations rose 21.2 billion pounds in November. M4 lending increased 0.9% month-on-month, while it moved up 14.4% on year

Eurozone monetary growth at a 28 year high

2008-01-04T15:26:00.000-08:00

The ECB seem to have lost control of the Eurozone money supply. Therefore, it shouldn't be surprised that inflation is accelerating.

"Bloomberg - Money-supply growth in the euro region held at the fastest pace in 28 years in November, adding to the European Central Bank's inflation concerns. M3 money supply, which the ECB uses as a gauge of future inflation, grew 12.3 percent from a year earlier, unchanged from October, the Frankfurt-based central bank said today. That's the highest rate since July 1979. "

Eurozone inflation remains elevated....

2008-01-04T15:20:00.001-08:00

From Euronews....

"As expected inflation in the euro zone remained high in December. The first estimate from the European Union's statistics agency Eurostat shows it was unchanged from the November figure. That is due to a surge in food prices and the cost of crude oil in the final quarter of the year.

The December inflation figure for the 13 EU member states using the euro at that time was 3.1%. The breakdown of the figures for November showed inflation at 4.1% in Spain, 3.5% in Germany, 2.6% in France and 1.8% in the Netherlands.

December's 3.1% is well above the European Central Bank's preferred level for inflation which is close to, but less than, 2%. Economists expect the ECB to keep interest rates unchanged at 4% this year. The bank has to keep prices under control but if it puts up the cost of borrowing it risks a slowdown in the region's economic growth."

Turkish Inflation double the government's target

2008-01-03T12:50:00.000-08:00

The Turkish Central bank need to develop a core inflation indicator to hide their rising inflation. Again, we hear the same tired old excuses - "food prices, oil, drought".

Turkish consumer prices rose 0.22 pct in December from November to reach 8.39 pct on a 12-month basis, more than double the government's target, the Turkish Statistics Institute said.

It was the second year in a row Turkey missed its year-end inflation target under an economic recovery programme backed by the International Monetary Fund (IMF).

Producer prices climbed by 0.15 pct from November to December for a total increase of 5.94 pct in 2007, the institute said.

The Central Bank has blamed higher oil prices and a long-lasting drought for the figure and warned last month planned electricity, natural gas and food prices rises would continue to pose risks.

Venezuelan Inflation hits 22.5 percent

2008-01-02T14:40:00.003-08:00

From the International Herald Tribune....

Venezuelan inflation soared to 22.5 percent in 2007, the highest official rate in Latin America, the Central Bank said Wednesday. Consumer price increases, Venezuela's highest since 2003, far exceeded the 12 percent annual goal announced at the beginning of 2007 by President Hugo Chavez's government.

Finance Minister Rodrigo Cabezas called the rate "unsatisfactory" and promised, without giving details, that the government and central bank would introduce new anti-inflationary measures within the next 10 days. Real inflation could be higher, as the government generally underestimates street price increases, said Gustavo Garcia, an economist at the IESA business school in Caracas.

2008-01-02T14:40:00.001-08:00

South Korean Inflation - now up to 3.6 percent

2007-12-31T12:12:00.000-08:00

From Forbes.com......

South Korea's consumer price index accelerated further in December to 3.6 percent year-on-year, breaching the central bank's target range as high crude oil prices pushed up the cost of industrial goods, the National Statistical Office said Monday.

The CPI growth figure was faster than the consensus forecast for a 3.5 percent increase for December. In November, the inflation indicator also stood at 3.5 percent.

Bolivian Inflation hits 11.5 percent

2007-12-31T12:08:00.000-08:00

From Bloombergs.........

Bolivia's inflation rate will end the year at 11.5 percent, led by higher prices for food such as beef, rice and carrots, the state-run Bolivian News Agency said.

Russian Inflation to Reach 12 Percent in 2007

2007-12-30T10:02:00.000-08:00

From the Voice of America.....

Russia's finance minister says the inflation will be near 12 percent this year, exceeding the government's earlier forecast of eight percent. Alexei Kudrin said in an interview aired Saturday on a television (Vesti) news channel that higher food and oil prices and a significant capital influx caused the higher than expected inflation.

Japanese inflation is at a nine year high

2007-12-28T12:38:00.000-08:00

From the International Herald Tribune....

Inflation in Japan rose at the fastest pace in more than nine years in November while industrial production and household spending declined, signaling that rising oil costs may derail the economy's longest postwar expansion.

Core consumer prices, which exclude fresh food, climbed 0.4 percent from a year earlier, the statistics bureau said Friday. Factory output slid 1.6 percent from a month earlier. Households cut spending 0.6 percent, the first drop since July.

German inflation remains elevated

2007-12-28T12:35:00.000-08:00

The German Federal Statistical Office said the consumer price index is expected to reach an annual average of 2.2 percent. For the month of December, inflation is expected to rise 2.8 percent, based on initial information from six of Germany's 16 states, it said. Prices for food and fuel have blamed for the sudden rise in inflation.

Rising inflation threatens Ahmadinejad

2007-12-28T12:33:00.000-08:00

People just don't like inflation.....

TEHRAN, Iran (AP) — A sharp rise in inflation has provoked fierce criticism of hard-line President Mahmoud Ahmadinejad — not only from his reformist opponents, but also from senior conservatives who helped bring him to power but now say he is mismanaging the economy.

Ahmadinejad was elected in 2005 on a populist agenda promising to bring oil revenues to every family, eradicate poverty, improve living standards and tackle unemployment. Now he is being challenged for his failure to meet those promises.

Reformists and even some fellow conservatives say Ahmadinejad has concentrated too much on fiery, anti-U.S. speeches and not enough on the economy — and they have become more aggressive in calling him to account.

In a rare gesture, Ahmadinejad admitted last week that inflation existed but blamed it on his predecessors, the conservative-dominated parliament, state-run media and bank managers who misused their power and printed too many bank notes.

Saudi inflation at a 12 year high

2007-12-25T13:00:00.000-08:00

Inflation in Saudi is on the rise.

DUBAI: Inflation in three Saudi Arabian cities, including the capital Riyadh, rose to more than five per cent in the third quarter, accelerating at a faster pace than the country average, the central bank said yesterday.

Price rises in Riyadh grew 5.9pc in the three months ended on September 30, while inflation hit 5.2pc in Najran and 6.1pc in Ha'il, the fastest pace in the oil producer's 16 cities, the Saudi Arabian Monetary Agency said on its website.

Inflation averaged of 4.4pc in the largest Arab economy in the third quarter, the central bank said. The dollar's weakness this year helped drive up food and beverage costs 6.5pc in the third quarter, while rents jumped 9.5pc in the period, the data showed.

"The change in the prices of imported goods is an important factor affecting the level of domestic inflation," the central bank said. Saudi Arabia's King Abdullah has ordered subsidies on imported rice and baby milk to cushion consumers from rising inflation, according to a decree published this month. Inflation in Saudi Arabia hit 5.35pc in October, its highest since 1995. Average inflation in the country could rise to 4.1pc next year from 3.8pc this year, a Reuters poll showed.

Singaporean inflation hits 25-year high of 4.2% in Nov.

2007-12-24T13:07:00.000-08:00

From Marketwatch.....

Singapore's inflation rate hit a 25-year high of 4.2% in November from a year earlier, reflecting higher food and housing prices, according to reports. Economists had expected the consumer price index to rise 3.9% in November, slightly faster than the 3.6% rise recorded in October. Food prices, the largest weighted category within the index, climbed 5.2% and housing prices climbed 2.9%. Singapore's broad measure of money supply, or M2, expanded 18% in October from a year earlier, figures released by the Monetary Authority showed. Analysts said the inflation data stoked speculation the authority would hike interest rates before a scheduled review in April.

Russian inflation heading towards 12 percent

2007-12-21T04:39:00.000-08:00

Such lack of ambition. The Russian government would like to contain inflation to just 8.5 percent next year.

The Russian government hopes to lower inflation to no higher than 8.5 per cent next year, though it is a "difficult" goal to meet, Economy Minister Elvira Nabiullina said.

Avoiding spending increases is one of the tools the government has for cooling the pace of consumer price growth, she told reporters in Moscow yesterday.

Russia, the world's biggest energy exporter, has struggled to contain inflation as revenue from oil and gas sales, and increasing food costs pushed up consumer prices. Inflation could surpass 12 per cent this year, missing the central bank's 8 per cent target.

Her remarks come a day after President Vladimir Putin called on cabinet members and regional officials to consider increasing the government's budget for the next three years to boost wages. But since expenditures are already set, "We'll need to review the federal budget," Putin noted.

Iranian inflation at almost 20 percent...

2007-12-21T04:36:00.000-08:00

Inflation is everywhere; the US, Europe, China and even Iran.....

TEHRAN (AFP) — Iran's former president Akbar Hashemi Rafsanjani spoke out against President Mahmoud Ahmadinejad's economic policies, on Friday, accusing him of fighting inflation with slogans and making excessive imports.

The pragmatic Rafsanjani is one of the conservative president's main political rivals, but so far he had eschewed explicitly criticising Ahmadinejad over the country's soaring inflation rate.

"Take this issue (inflation) very seriously... It should be dealt with using economic expertise and not with slogans and political games," Rafsanjani said in a sermon broadcast live on the state radio.

His comments came five days after Ahmadinejad gave a televised interview to combat growing complaints about inflation, in which he blamed his political opponents and external factors rather than the government's performance.

"Avoid slogans and incorrect statistics and bring out realities," Rafsanjani said in his sermon for the prayers of the Islamic holiday of Eid Ghorban or Feast of the Sacrifice.

The Arab Eid al-Adha marking the end of the annual hajj pilgrimage to Mecca in Saudi Arabia is called Eid Ghorban in Iran.

Inflation -- which reached 19.1 percent in the month to the end of November -- has become a major political issue in Iran ahead of crucial March 14 parliamentary elections.

Trichet evades responsibility

2007-12-20T04:45:00.000-08:00

Trichet wants workers and firms to do his job for him. He wants them to take a "responsible" approach to higher inflationary pressures. While he is busy pumping out the money to save the banks, he wants workers to take real wage cuts.

If he was really serious about inflation, he would just raise interest rates. Remember "Inflation is always and everywhere a monetary phenomenon".

The European Central Bank is determined to prevent higher energy and food prices from driving up inflation more broadly.

ECB president Jean-Claude Trichet has appealed to bosses, workers and companies not to raise wages and prices in response to higher inflation, as he explained in an interview with EuroNews: "It's our responsibility to make sure that this inflation is just temporary and doesn't spill over into the cost of living, and particularly that it doesn't affect wage negotiations. Because then, we'd have what we call second round effects, leading to inflation which would be long lasting, instead of being temporary and related to higher costs for oil and raw materials."

Questioned about the widening gap between the rich and the poor in Europe, Trichet said: "Who suffers most from inflation? Who suffers most from rising prices? It's the poor, not the rich. The rich can protect themselves from inflation, poor people can't. When we fight for price stability and against inflation, we're doing something that is most important for the most underprivileged among us."

Euro zone headline annual inflation recently hit 3.1% and Trichet said the region faced a "more protracted" period of elevated inflation than previously expected and the the ECB will act to curb it. He did not say if such action would include changes in interest rates, but added that their current level is correct.

China raises rates again

2007-12-20T04:40:00.000-08:00

There is at least one central bank taking the inflation threat seriously.

Dec. 20 (Bloomberg) -- China raised interest rates for the sixth time this year to cool the world's fastest-growing major economy after inflation accelerated at the quickest pace in 11 years.

The benchmark one-year lending rate will increase by 0.18 percentage point to a nine-year high of 7.47 percent, starting tomorrow, the People's Bank of China said today on its Web site. The one-year deposit rate will rise by 0.27 percentage point to 4.14 percent.

Hong Kong inflation predicted to go up

2007-12-20T04:38:00.000-08:00

Inflation in HK already stands at 3.2 percent. It is predicted to rise further....

(XFN-ASIA) - Hong Kong's consumer inflation will probably edge up to 3.5 pct this month from the 3.4 pct recorded in November as demand for goods and services remains strong and as high food prices in the mainland continue to have an effect here, said Chen Peng, an economist at JPMorgan Chase.

'As the economy remains robust and with Christmas holidays-related spending, demand for goods and services is stronger this month compared to last month,' he said.

'Hong Kong imports the bulk of its fresh food requirements from China and the fact that food prices there remain at high levels means this will immediately be felt here,' he said.

'I expect consumer inflation this month at 3.5 pct, but this might fall to an average 3 pct in the first quarter next year as food prices in China stabilize and as the anticipated economic slowdown in the US affects Hong Kong,' Peng said.

The government announced today that Hong Kong's composite consumer price index (CPI) rose 3.4 pct in November from a year earlier, accelerating from the 3.2 pct growth recorded in October.

Another Fed president voices concerns over inflation

2007-12-20T04:36:00.000-08:00

From Reuters....

The U.S. economy will be "very weak" for several more months and manage modest growth in 2008, but inflation is a worry and spells for tough monetary policy decisions next year, a top Federal Reserve official said on Wednesday.

"I have to say that I am uncomfortable with the inflation picture, and disappointed that the improvement we saw earlier this year was not more lasting," Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, told the Charlotte Chamber of Commerce.

"I am also troubled by the lengthy divergence we've seen between overall and core inflation," Lacker said.

"Because the job of a central banker is to protect the purchasing power of currency, it is overall inflation that we need to keep down, not just core inflation. ... If energy prices fail to decline, monetary policy decisions will be that much more difficult in 2008," he said.

Trichet warns again about inflation

2007-12-19T05:00:00.000-08:00

The following story begs the obvious question: if the ECB is worried about inflation then why doesn't it do its job and hike rates?

Dec. 19 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said his economy faced a ``more protracted'' period of elevated inflation than previously expected, signaling he's not planning to cut interest rates to ease a credit squeeze.

``The risks to price stability over the medium term are clearly on the upside,'' Trichet told the European Parliament's economic and monetary affairs committee in Brussels today. ``The ECB's Governing Council stands ready to counter upside risks to price stability.''

European inflation accelerated to 3.1 percent last month, the fastest pace since May 2001 as food prices soared. The risk that inflation will remain above its target of just below 2 percent is preventing the ECB from following counterparts in the U.S., U.K. and Canada in reducing borrowing costs.

A surge in prices for food and oil have created a ``strong upward'' effect on inflation, which would build if wages and other costs rise to compensate, Trichet said. He repeated that the bank expects consumer prices to increase about 2.5 percent next year after 2.1 percent in 2007.

Fed board member "concerned about inflation"

2007-12-19T04:57:00.000-08:00

Richard Fisher - Fed board member from Dallas is a little worried about US inflation. It is a pity that more board members didn't share his concerns:

DALLAS–The U.S. Federal Reserve must not "overreact" to the credit crisis and take risks with inflation, one of its top policy-makers said yesterday, in a clear hint at reluctance to cut interest rates further.

"The actions we've taken should provide some buoyancy through the course of next year to the economy. But I want to make sure that we don't overreact and create further problems down the road," said Richard Fisher, president of the Federal Reserve Bank of Dallas.

UK inflation increases to 4.3 percent

2007-12-19T04:53:00.000-08:00

UK inflation rose to 4.3 per cent in November, up from 4.2 per cent in October. The main factors were additional upward higher food prices and motor vehicle purchase costs and a partially offsetting downward contribution from vehicle insurance.

Inflation excluding mortgage interest payments – was 3.2 per cent in November, up from 3.1 per cent in October.

Wall Street losing patience with the Fed

2007-12-15T04:25:00.000-08:00

Oh boy, the Fed are really beginning to screw up. In an effort to reduce credit worries and stabilize financial markets, the Fed cut rates. However consumer prices keeps on rising, and nothing destroys market confidence like inflation.

If the Fed keeps cutting, they ending up having to start hiking, particular if inflation keeps rising.

NEW YORK (AP) — Stocks sold off Friday after a jump in consumer inflation raised concerns about how much freedom the Federal Reserve has to continue cutting interest rates. The Dow Jones industrial average gave up more than 178 points.

The Labor Department said the consumer price index rose 0.8 percent in November amid a spike in gasoline prices. The report also found large increases in the cost of clothing, airline tickets and prescription drugs.

The report raises questions about the Fed's options for priming the economy. The Fed this week lowered interest rates and announced a plan to align with other key central banks and offer loans to pressed lenders around the world. But while it wants to stimulate the U.S. economy and make lending easier among banks wary of faltering debt, the Fed also has to keep a watchful eye on inflation.

Eurozone inflation 3.1 percent in November.

2007-12-15T04:21:00.000-08:00

The ECB are now a long way from their 2 percent target. Euro zone annual inflation rose to 3.1 percent in November. Eurozone inflation is at its the highest level since 2001.

ECB alarmed at rising inflationary pressures

2007-12-13T06:47:00.000-08:00

The ECB are becoming increasingly concerned about rising prices in the Eurozone. However, in contrast to other major central banks, it has avoided making things worse by an irresponsible cut in rates.

FRANKFURT (AFP) — The European Central Bank repeated concern Thursday about inflationary pressures in the 13-nation eurozone, a day after saying it would join a coordinated liquidity injection with four other central banks.

A monthly ECB bulletin said its information "confirmed the existence of strong short-term upward pressure on inflation, with the HICP inflation rate reaching 3.0 percent in November." Wording of the bulletin, which referred to the harmonized index of consumer prices, an EU standard measure of inflation, matched that of ECB president Jean-Claude Trichet on December 6, when the bank left its key interest rate at 4.0 percent.

It was released a day after the ECB said it would take joint action with the US Federal Reserve and central banks in Britain, Canada and Switzerland to inject cash and confidence back into chronically tight eurozone money markets.

The action, the first such widely coordinated move since September 11 2001 terror attacks against the United States, involved more than 60 billion dollars (40 billion euros) and was aimed at easing the flow of credit on which global economies depend.

But on Friday the ECB focused on the spectre of inflation, saying in the bulletin that "with money and credit growth remaining very vigorous in the euro area, the Governing Council stands ready to counter upside risks to price stability."

In Belgium, ECB governing council member Guy Quaden said the bank was "seriously concerned" about inflation, which it is mandated to hold close to but below 2.0 percent.

"The current situation is not satisfactory with regards to the inflation rate and the prospects for the short term too are not satisfactory," said Quaden, who is also governor of the National Bank of Belgium.

In France, the national statistics institute INSEE said Thursday that inflation there had risen by 0.5 percent in November from the previous month, the biggest increase since August 2004, and stood at 2.4 percent on an annual basis.

The ECB thus has to deal simultaneously with two issues, ensuring a steady flow of credit to keep the eurozone economy growing, while keeping inflation from spiraling out of control.

High prices for oil, cereals and high-profile food like dairy products have heightened inflation expectations among consumers, which could lead, and already has in Germany, to growing calls for wage increases.

A resulting second round of inflation would represent a structural increase that could last much longer than spikes in oil and food prices normally do, and the ECB has warned repeatedly against such a possibility.

While repeating Thursday that "overall, the fundamentals of the euro area remain sound," the bank stressed: "It is of the essence that no second-round effects materialise via an impact from current inflation rates on wage and price-setting behaviour."

UK inflationary expectations increase

2007-12-13T06:33:00.000-08:00

The Bank of England's decision to cut rates is beginning to look like utter folly. Last week, output prices hit a 16 year high. Now, the latest inflation expectations survey reaches an eight year high.

The Bank of England has abandoned any pretense at maintaining stable prices. The objective now is to protect the banks and stabilize housing prices.

Dec. 13 (Bloomberg) -- Britons' inflation expectations rose to the highest in at least eight years in a Bank of England survey last month, making it harder for the central bank to lower interest rates further after the first cut since 2005.

Consumers predict prices will increase 3 percent in the next 12 months, the highest median forecast since the report started in 1999, the central bank said today in London. The quarterly survey, conducted by GfK NOP Ltd., included responses from 2,054 people interviewed from Nov. 15 to Nov. 20.

Policy makers, who aim to keep inflation at 2 percent, said last month they are watching expectations because oil prices close to $100 a barrel and rising food costs may prompt workers to demand higher pay. The U.K. central bank lowered the benchmark interest rate on Dec. 6, citing concern about slower economic expansion next year.

The inflation rate rose to 2.1 percent in October, the highest in four months. Oil prices rose to a record $99.29 on Nov. 21, pushing up the cost of gasoline and other fuels.

Current Inflation

Respondents in the survey said the current rate of inflation was 3.2 percent, the highest median reading since the survey was first conducted. Annual price gains at that pace would legally require the governor of the central bank to write an open letter of explanation to the Treasury. That has only happened once, in April this year.

Faster price gains may prompt workers to bid up their pay. Still, core inflation, which strips out food, energy, tobacco and alcohol, matched an 11-month low in October, and wage growth slowed in the three months through October, according to government statistics.

Slumping Satisfaction

A net 31 percent of respondents said they were satisfied that the Bank of England is ``doing its job to set interest rates to control inflation,'' the lowest reading since May 2000. The survey was the first the bank has conducted since it opened an emergency line of credit to Northern Rock Plc in September, leading to a run on the mortgage lender.

A jump in money-market lending rates following the collapse of the U.S. subprime mortgage market is helping cool economic growth and keep inflation under control, the bank said Nov. 14. It also predicted economic growth will be about 2 percent next year, down from around 3 percent in 2007. The bank cut the benchmark rate by a quarter point to 5.5 percent last week.

Higher interest rates are already hurting the housing market following a decade-long boom in which property values tripled. U.K. real-estate agents and surveyors became the most pessimistic about house prices since at least 1998 last month, the Royal Institution of Chartered Surveyors said in a separate report today.

Blaming inflation on the foreigners

2007-12-12T07:01:00.000-08:00

Here is the Washington Post trying to explain that the Federal Reserve no longer control prices and that the 4 percent inflation rate is all the fault of the foreigners.

The conclusion is obvious; since the foreigners cause the inflation then it is OK for the Fed to cut interest rates.

Inflation Echoes From Abroad

The Federal Reserve disappointed Wall Street yesterday with its measly quarter-point reduction in interest rates. Yes, the Fed said, credit conditions have deteriorated and a recession is possible, but with consumer prices likely to end the year up nearly 4 percent, we're not exactly in the target zone for price stability, either.

As it happens, there's probably little the Fed can do about inflation right now. That's because the sources of inflationary pressures are global rather than national, and thus not very responsive to the Fed's anti-inflation medicine. To understand how this happened, stay with me for a short, explanatory detour into international economics.

It's always been said that when another country ties its currency to the U.S. dollar, it is effectively giving up the right to control its own monetary policy and handing it to the Fed. Over the years, a number of countries have learned this lesson -- painfully -- as they found themselves unable to tame inflation, respond to a recession or stop a run on their currencies.

What we are discovering, however, is that if enough countries go this route and adopt some form of dollar peg, it's not only the other countries that lose control of monetary policy -- to a degree, it's the United States as well.

As you probably have figured out, the big culprit here is China, whose insistence on preventing its currency from appreciating against the dollar has created huge imbalances in the global economy. But it's not just China. A number of other of Asia's export tigers also use various mechanisms to keep their currencies roughly pegged to the dollar, as have many Middle Eastern countries whose economies are tied to oil that is priced in dollars. There are also countries in Central and South America that are careful not to let their currencies wander too far from that of their largest trading partner. Add it all up and you're talking about more than 40 percent of the global economy that is dollar-pegged to some degree.

Chinese inflates today, exports higher prices tomorrow

2007-12-11T11:04:00.000-08:00

Here is some more bad news, just in time for Paulson's visit to Beijing. China has rising prices and an ever growing trade imbalance with the US.

HONG KONG, Dec. 11 — Inflation accelerated further in China last month, government statisticians announced today, as rising costs for food and fuel together with government currency policies are sending prices up briskly across Asia.

Consumer prices were 6.9 percent higher in China in November than a year earlier — the biggest increase in Chinese prices in almost 11 years. The big contributors were food prices, which vaulted 18.2 percent, and fuel prices, which climbed 5.5 percent as the Chinese government raised regulated retail prices for gasoline and diesel, although these prices remain slightly below world levels at $2.65 a gallon.

Rising prices in China are part of a regional trend. Indonesia announced last week that inflation was 6.7 percent in November, while Vietnam officials did not even wait for the end of November before announcing that inflation there had hit 10 percent for the month.

Governments across most of Asia have been issuing more of their own currencies to buy dollars in an effort to maintain the competitiveness of their exports. So while the strengthening euro has hurt European companies’ sales in the United States, Asian countries like China, India, Vietnam, Indonesia and even Cambodia are still increasing their share of United States imports, according to American data for the first three quarters of this year compiled by Global Trade Information Services, based in Columbia, S.C.

China’s customs agency released a preliminary estimate today that the country ran a trade surplus of $26.28 billion last month, up 14.7 percent from the month a year ealier and nearly matching the record of $27.05 billion set in October.

But briskly expanding money supplies and strong industrial growth to produce export goods have been contributing to inflation across Asia. Asian currency and trade policies are also prompting more unhappiness in Washington and European capitals, particularly with China, which has been especially aggressive in holding down the value of its currency.

Inflation rising in Lithuania

2007-12-11T11:01:00.000-08:00

Lithuania's average 12-month HICP inflation reaches 5.5 pct in November. Just one more inflating Eastern European country with too much money chasing too few goods.

VILNIUS (Thomson Financial) - Lithuania's average 12-month inflation rate, as measured by the EU Harmonised Index of Consumer Prices (HICP), reached 5.5 pct in November, according to the Statistics Department.

The HICP-measured annual inflation rate in August was 7.9 pct. Both rates measured by HICP exceeded the respective rates estimated under the national standards by 0.1 percentage point.The monthly rate was 1.1 pct in November and coincided with the respective rate estimated under the national standards last month.

Chinese inflation at an 11-year high in November

2007-12-11T10:58:00.000-08:00

Look east, look west; inflation is everywhere....

BEIJING - China's inflation rate was near an 11-year high in November, the government said Tuesday, fuelling fears that months of efforts to tame rising prices were not enough.

The consumer price index, a main gauge of the temperature of the economy, rose 6.9 percent last month compared with a year earlier, the National Bureau of Statistics said in a press release. The November figure, up from 6.5 percent in October, was at the highest monthly level since December 1996, according to analysts.

The National Bureau of Statistics said the spike in November was propelled by an 18.2-percent rise in food prices. Pork, which forms the core of most Chinese diets, was up by a staggering 56 percent.

UK output prices at a 16 year high

2007-12-11T10:54:00.000-08:00

In November, output price annual inflation for all manufactured products rose to 4.5 per cent, the highest since August 1991, a 16-year high. Input price inflation rose from 8.5 per cent in October to 10.3 per cent in November. Month on month, output prices for all manufactured products rose 0.5 per cent in November, mainly reflecting rises in petrol and food products.

Central banks under pressure over inflation

2007-12-10T07:54:00.000-08:00

From Reuters:

Another U.S. Federal Reserve interest rate cut this week is a foregone conclusion as far as financial markets are concerned, but a heaping helping of global inflation data may leave a sour aftertaste.

The Fed is widely expected to follow the central banks of Canada and England with a quarter-percentage-point reduction in the benchmark federal funds rate on Tuesday and some economists predict a more aggressive half-point cut to prevent a housing downturn and credit contraction from derailing the economy.

But nagging inflation, largely from steep energy and food prices, is forcing central bankers onto a narrow plank as they seek the right balance between promoting growth and keeping prices in check. Inflation hawks will likely be heard at least faintly in the closely watched statement announcing the Fed's decision.

Last week, the European Central Bank kept rates on hold but acknowledged that some members had considered a hike to tamp down rising prices. ECB President Jean-Claude Trichet said the euro zone central bank "stands ready to counter upside risks to price stability," which sent a signal to investors that rate cuts were unlikely any time soon.

UK producer prices hit a 16 year high

2007-12-10T07:51:00.000-08:00

From the London Times......

Fears for the ability of the Bank of England to continue cutting interest rates grew today after factory gate inflation leapt to a 16-year high.

The 0.5 per cent rise in output prices in November took inflation on the producer price index (PPI), an early indicator of price pressures, to 4.5 per cent, the highest level since August 1991.

The Office for National Statistics said that the increase was driven by soaring food and energy prices. Food product prices were up by 6.6 per cent over the year, the strongest such figure since June 1993, in large part because of the soaring cost of domestically produced potatoes following a weak harvest.

Energy prices also climbed, spurred higher by a 9.8 per cent increase in the oil price over the month. The annual rise in petrol products' cost hit 18.5 per cent, the strongest for more than seven years.

While financial markets have been in turmoil since August, posing a risk to growth that last week led the Bank of England's Monetary Policy Committee (MPC) to cut interest rates by a quarter-point, producer price inflation has climbed steadily upwards, adding weight to calls for caution by the MPC's hawks.

Liquidity before price stability

2007-12-09T11:32:00.000-08:00

The fed will cut rates before they know about the latest inflation developments. It shows where the true priorities lie.

From MarketWatch

WASHINGTON (MarketWatch) -- In a glorious bit of timing, the Federal Reserve is expected to cut interest rates on Tuesday for a third straight meeting, just days before government data are released showing some of the highest inflation rates in decades.

That's all you need to know about the Fed's balance of risks: Policymakers are much more worried about the illiquid credit markets and the possible hit that the credit squeeze could have on the economy than they are about the risks of inflation breaking out.

"Don't look now, but while we're in the midst of an easing cycle, the U.S. is facing a 4% inflation rate," wrote Avery Shenfeld, an economist for CIBC World Markets. "But for now, none of this matters, as both bonds and the Fed are focused on the credit crunch and its growth threat."

The economic data have been weak, but not disastrous, since October's meeting, when the Fed signaled that it thought it was done cutting rates. It's not the immediate economic situation that's brought the Fed back into the game of cutting rates, it's the horrendous condition in the credit markets, which are arguably worse off now than they were in August.

"The Fed is expected to reduce rates in response to evidence of very sluggish fourth quarter growth, and further stresses in the credit markets," wrote Brian Bethune and Nigel Gault, U.S. economist for Global Insight.

Ahead of the relatively strong employment report on Friday, markets were anticipating that the Federal Open Market Committee could cut the federal funds target rate by a half percentage point to 4%. Now it seems more likely to be a quarter-point cut, especially considering the strong minority opposition within the committee about cutting at all.

Many economists are reviving their forecast that the Fed will do something dramatic with the discount rate, a tool for providing liquidity to banks that's been underutilized in the Fed's view. The Fed could cut the discount rate by 50 basis points, further reducing the penalty spread between the federal funds rate and the discount rate to just a quarter point.

Eurozone inflation risks intensify

2007-12-08T05:44:00.000-08:00

From Reuters:

Euro zone inflation risks have intensified and the European Central Bank is ready to act to avoid second-round effects, ECB executive board member Jose Manuel Gonzalez-Paramo said in an interview published on Saturday.

Asked whether the strong euro was stopping the central bank from raising rates, Gonzalez-Paramo said the euro exchange rate was one factor but not the only one."It can make things easier or not. But it is never our objective," he told El Pais newspaper.

"We haven't put off any increase (in rates). We never commit ourselves beforehand ... (but) have upside inflation risks intensified? They have. Do they exist now? They do. Have they intensified? Doubtless." "The ECB is ready to act firmly to avoid the materialisation of second-round effects in the fixing of salaries and prices," he said, in comments which echoed those of ECB President Jean-Claude Trichet earlier this week.

Zimbabwe's inflation tops 1,000 percent

2007-12-08T05:41:00.000-08:00

From the BBC

The poor state of the economy is having an effect on infrastructure Zimbabwe's inflation rate has surged past the 1,000% mark signalling that the African country is struggling to keep its economy functioning normally. The annual rate of price growth was 1,042.9% in April, the Central Statistics Office (CSO) said, having risen 129 percentage points from March. It means average goods are about 11 times as expensive in April 2006 as they were 12 months earlier.

Zimbabwe is suffering from shortages of food, fuel and foreign currency. President Robert Mugabe blames domestic and foreign enemies for the problems. Many analysts put the responsibility firmly at the ruling party's door, claiming the government made the situation worse when it seized control of land owned by white farmers, which triggered a sharp drop in production and exports of agricultural goods.

Zimbabwe is a country that is blighted by crumbling urban infrastructure. There are regular water and power cuts, while the cost of everyday foods has surged. A loaf of bread now costs between Z$80,000 - Z$110,000 (79 US cents - $1.08) up from about Z$7,500 last year, when the price was controlled by the government.

A carton of orange juice costs about Z$500,000 and a kilo of beef up to Z$1m. "Business quotations are not valid for more than two days," an office manager in Harare told the BBC News website. "Actually I have one in front of me which says it is valid for 24 hours. Prices can literally double overnight," she said.

In January, the government introduced a Z$50,000 "bearer cheque" worth 49 US cents, to become the highest value currency note. It is not enough to buy a copy of the daily Herald newspaper at Z$80,000.

Housing, education and transport costs also have jumped, while the unemployment rate means that almost two out of every three Zimbabweans are out of work. The country is struggling to pay civil servants and is thought to owe money to neighbours such as South Africa and Mozambique from whom it is been importing electricity and fuel.

The latest inflation data was to have been released on Wednesday, but the announcement was postponed, which only led to further panic about the economic crisis.

Eurozone inflation rising

2007-12-08T05:04:00.000-08:00

From AFP

Soaring inflation is becoming a risk to the 13 nations sharing the euro as they struggle to cope with slower economic growth, the chairman of eurozone finance ministers meetings said Monday.

"We cannot ignore increasing inflation risks," Luxembourg Finance Minister Jean-Claude Juncker said as he arrived to chair a meeting with his eurozone counterparts.

"The economy is robust but slowing down a bit; we have to face these risks," he said. According to official EU data on Friday, inflation in the eurozone rose to 3.0 percent in November, the highest in more than six years and well above the European Central Bank's preferred level of close to but less than 2.0 percent.

The ECB faces a growing dilemma over keeping prices under control without weakening the economy as it struggles to cope with financial market volatility, record oil prices and a strong euro.

Dutch Finance Minister Wouter Bos also sounded the alarm about inflation, saying that it was probably the biggest threat to growth but added that "it's not one we can't beat." Cypriot Finance Minister Michalis Sarris said that higher inflation was a broader worldwide trend, driven by soaring commodities prices, liquidity in the global financial system and rising prices and incomes in China.

Tighter monetary policy for China

2007-12-05T05:56:00.000-08:00

The credit boom in China could be coming to an end. The Chinese authorities are threatening to reduce access to credit to try to calm inflation. Things are getting out of control; Chinese inflation is already at 6.5 percent and it is rising fast.

Dec. 5 (Bloomberg) -- China plans to shift to a "tight" monetary policy in 2008, signaling the government may raise interest rates further and allow quicker currency appreciation as the economy heads for its fastest expansion in 12 years.

The central bank changed its stance from the ``moderate tightening'' bias of recent months and ``prudent'' policy of the preceding decade, in a statement released today at the end of a three-day meeting of China's top leaders and financial officials.

The change underscores the government's failure to cool the world's fastest-growing major economy after five interest rate increases this year. China's economy grew 11.5 percent in the third quarter, inflation is running at a decade high and the benchmark stock index has more than doubled in 2007, as an export boom pumps cash into the financial system.

"China needs to take tougher monetary policy measures including continued rate increases to tame inflation, control fixed-asset investment expansion and damp asset prices,'' said Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong. "The central banks' rate increases this year have been outpaced by surging inflation."

The so-called Central Economic Work Conference is held annually before the end of the year to set policies and targets for next year. Before this week's conference, the Communist Party's ruling Politburo highlighted economic overheating and sustained inflation as key risks in the economy in 2008.

Consumer prices in China rose 6.5 percent in October from a year earlier and fixed-asset investment in urban areas increased 26.9 percent through October from a year ago, up from 24.5 percent in all of 2006.

UK gas prices up 15 percent

2007-12-05T05:50:00.000-08:00

The UK's largest gas supplier will shortly push up gas prices by 15 percent. However, it is not a major issue for the Bank of England. Energy prices are not in their measure of "core inflation". Therefore, it is nothing to worry about, unless that is, you have to buy gas.

(London Times) - British households suffered a fresh blow to their strained finances yesterday as British Gas said that it was lifting the price of a key energy tariff by up to 15 per cent, prompting fears of a wider increase in gas and electricity bills in the new year.

Britain’s largest energy supplier said that it was putting prices up on its Market Tracker price plan, which follows prices in the wholesale energy market, by 13 per cent for gas and 15 per cent for electricity, with immediate effect.

The majority of the ten million gas and six million electricity customers of Centrica, the British Gas owner, who are on standard or online tariffs will not be affected, but industry experts say that the news is a harbinger of price rises to come in 2008.

European economy damaged by subprime crisis

2007-12-04T11:34:00.001-08:00

Lets forget about inflation, its time to bail out the banks....

Dec. 4 (Bloomberg) -- Europe's economy may be more damaged than the European Union has forecast by fallout from the U.S. housing slump as banks curb lending and accelerating price gains prevent central bankers from cutting interest rates, EU finance officials said.

"There may be a question mark over our hopes that Europe could decouple'' from a U.S. slowdown, European Central Bank governing council member Christian Noyer told a conference in Paris today.

The growth slowdown comes as inflation picks up, posing a quandary for the ECB, which has refrained from following the U.S. Federal Reserve in cutting interest rates. The central bank is concerned that price gains may trigger an inflation spiral by stoking wage demands. Euro-area consumer prices jumped 3 percent in November from the year-earlier period, the biggest increase in six years, driven by higher commodity costs.

"The focus is on inflation and that is right,'' Cypriot Finance Minister Michalis Sarris, said in an interview. "For a world and a European continent that has been used to 2 percent inflation, even close to 3 percent will be unsettling.''

Inflation Risks

Factory-gate prices increased 3.3 percent in October from a year earlier, the most since December 2006, after rising 2.7 percent in September, the EU statistics office in Luxembourg said today. The rate exceeded the 3 percent median forecast in a survey of 29 economists by Bloomberg News.

Austrian central bank governor Klaus Liebscher said Nov. 29 that inflation risks are ``clearly on the upside,'' and Bundesbank President Axel Weber said Nov. 23 the ECB may still raise interest rates should ``tensions'' in money markets ``progressively ease.'' Crude-oil prices rose to close to $100 a barrel last month and were at $88.45 today.

Let us go back to July

2007-12-01T08:57:00.000-08:00

Here is a clip from July 2007. A couple of bulls are yakking on about how great the future will be. Peter Schiff is there to spoil the party.

What a difference a few months make.

European inflation rate rises sharply

2007-11-30T07:11:00.000-08:00

European inflation is rising quickly.....

Nov. 30 (Bloomberg) -- European inflation accelerated in November to the fastest in more than six years, adding pressure on the European Central Bank to raise interest rates even as economic expansion cools.

The inflation rate in the 13-nation euro area rose to 3 percent this month from 2.6 percent in October, the European Union's statistics office in Luxembourg said today. An index of executive and consumer sentiment fell to a 20-month low of 104.8 from 106 in October, according to a separate report.

Czech Inflation forces central bank to act

2007-11-29T10:59:00.000-08:00

Central bank starts to raise interest rates....

PRAGUE, Nov 29 (Reuters) - The Czech central bank (CNB) raised interest rates by 25 basis points on Thursday, resuming its policy tightening after a two-month pause to clamp down on resurgent inflation in the strong central European economy.

Price pressures have been building in central Europe's booming economies, and the threat of a spillover of rising Prices for food and energy into higher inflation and wage expectations spurred central bankers into action.

The Czech economy has been growing at about 6 percent for the third year and Thursday's Reuters poll forecast November inflation rate at a six-year high of 4.5 percent, versus the CNB's 3 percent target with plus/minus 1 percent comfort zone. The outlook is for inflation to leap early next year towards 6 percent, due mainly to a sales tax rise and regulated price hikes, factors which monetary policy can do nothing to contain.

Inflation has Dallas Federal Reserve president 'very concerned'

2007-11-29T10:53:00.000-08:00

Perhaps there is someone in the federal reserve system who can put a stop to the collapsing credibility of the US central bank. Dallas President Richard Fisher finally speaks out. Yes, inflation is a concern, the US economy is in reasonable shape. The only reason for an interest rate cut comes from those who want to bail out Wall street.

Bloomberg News - Federal Reserve Bank of Dallas President Richard Fisher said he's "very concerned" about the chance of faster inflation, and policy makers are weighing that risk against having "healthy, working" financial markets.

"The decision will have to be based on these two counter- forces" at the next interest-rate meeting on Dec. 11, Fisher said today in Amarillo, Texas. "There are people at the table," including Fisher, who have inflation concerns, he said.

Fisher's remarks contrast with comments earlier today by Fed Vice Chairman Donald Kohn, who buttressed forecasts for officials to cut interest rates by highlighting concern about "deterioration" in financial markets. Traders anticipate the central bank will act for the third straight meeting to offset risks the economy will fall into recession.

Euro-area inflation rising fast

2007-11-28T09:42:00.000-08:00

Euro-Area Inflation May Reach 3 percent.....

Nov. 28 (Bloomberg) -- Inflation in the euro area may accelerate to a six-year high of 3 percent this month, increasing pressure on the European Central Bank to raise interest rates, economists said after prices jumped in Germany.

Banks including Barclays Capital and Dekabank today revised up their November inflation forecasts for the euro region to as high as 3 percent after soaring oil and food prices pushed the rate to 3.3 percent in Germany, Europe's largest economy. Before the German figures, economists were forecasting a euro-region rate of 2.7 percent after 2.6 percent in October.

A short course on monetary economics

2007-11-28T09:41:00.000-08:00

Courtesy of Ron Paul.

German inflation hits a 13 year high

2007-11-27T11:14:00.000-08:00

If only Germany could leave the ECB....

FRANKFURT (AFP) — German inflation reached its highest level since 1994 in November, spiking to 3.0 percent according to provisional data released Tuesday. On top of rising oil prices, the soaring cost of food items such as dairy products and cereals pushed inflation sharply higher as the country approaches the start of winter.

While the trend of rising prices is similar in other eurozone countries, German inflation is the first to reach the symbolic 3.0 percent threshold, exceeding a consensus analyst forecast of 2.8 percent. The rise in consumer prices comes amid signs of slowing economic growth in Germany, the biggest economy in the eurozone, and presents the European Central Bank with "quite a challenge," UBS economist Martin Lueck noted.

Zimbabwe's Inflation is incalculable

2007-11-27T11:10:00.000-08:00

Can you imagine an inflation rate so high that goods have disappeared from the shelves and there is nothing to calculate. In Zimbabwe, money has become completely and totally worthless.

(BBC) Basic goods have disappeared from supermarket shelves Zimbabwe's chief statistician has said it is impossible to work out the country's latest inflation rate because of the lack of goods in shops. "There are too many data gaps," the Central Statistical Office's Moffat Nyoni told state media.

Many staple goods are often absent from shop shelves after the government ordered prices to be halved or frozen in a bid to stem galloping inflation. September's inflation rate was put at almost 8,000%, the world's highest.

UK electricity and prices going up 10 percent

2007-11-24T04:18:00.000-08:00

The BBC reports that UK energy bills will be going up 10 percent in January. However, this shouldn't hold back the Bank of England, who are desperate to cut interest rates. Since energy prices are excluded from core inflation, the Bank of England can assume happly the problem away.

Soaring fuel bills this winter could lead to a sharp rise in the number of people struggling to pay for heating, an independent energy broker says.
Catalyst Commercial Services expects domestic gas and electricity bills to rise by as much as 10% by January.

It says this could push 400,000 more households into "fuel poverty" - when the cost of heating accounts for 10% or more of household income.

Ron Paul versus Bernanke

2007-11-23T11:46:00.000-08:00

Here is Ron Paul confronting Bernanke over his incompetant management of US monetary policy.

Slovenia struggling with inflationary pressures.

2007-11-23T06:19:00.000-08:00

Here is yet another Eastern European country struggling to control inflation.

LJUBLJANA, Nov 23 (Reuters) - An inflation spike following Slovenia's adoption of the euro has exposed weaknesses in the economy and fiscal policy and is a warning to eurozone aspirants to ensure deep reforms are in place before accession.

Although it is the richest of East Europe's ex-communist states, Slovenia, which joined the single currency in January this year, has a history of struggling with inflation, both when it was part of communist Yugoslavia and since independence in 1991.

In October the headline rate jumped to 5.1 percent, nearly double the average eurozone rate and up from 1.6 percent in the same month of last year. While consumer prices have been rising across the continent, analysts said the larger jump in Slovenia shows how the economy is struggling to cope with the competitive pressures that accompanied joining the euro zone.

Big hike in Polish inflation

2007-11-23T06:15:00.000-08:00

Polish inflation on the increase. What is more, the Polish central bank are about to hike rates. Other central banks should follow their lead.

Polish net inflation rises to 1.4 pct in October

WARSAW (Thomson Financial) - Poland's net inflation rose to 1.4 pct in October from 1.2 pct a month earlier, central bank data showed today, coming bang in line with analysts' expectations of 1.4 pct. Net inflation is the main measure of underlying price growth used by the central bank and excludes food and fuel prices, which have soared in recent months. Consumer price inflation rose faster than expected to 3.0 pct year-on-year last month, hardening market bets on a fourth rise in central bank interest rates when policymakers meet next week.

China - More inflation next year

2007-11-23T06:13:00.001-08:00

Chinese officials forecast higher inflation next year.....

BEIJING (AP) — China's consumer inflation rate for 2007 should be about 4.5 to 4.6 percent, the country's chief statistics official said, according to a government news agency report Friday.

Xie Fuzhan, director of the National Bureau of Statistics, made the comment in an appearance Thursday at Beijing's Tsinghua University, the Xinhua News Agency said. The forecast was in line with those of other officials and private economists. Last year, China's consumer inflation rate was 2 percent.

Inflation spiked to a monthly rate of 6.5 percent in October, blamed mostly on a rise in food prices due to shortages of some items. But those shortages are expected to end soon as a new crop is harvested, and price rises for other items such as fuel have stayed low.

US inflation hits 3.5 percent in October

2007-11-18T03:47:00.000-08:00

(Click on the image to see a larger version)

US inflation shows little sign of subsiding. In the twelve months up to October, consumer prices increased by 3.5 percent. Most of the increase was due to energy prices (up 14.5 percent) and food (up 4.4 percent).

However, nothing to worry about, core inflation is running at just 2.2 percent (that is the last number in the red box).

Core inflation is becoming a dangerous idea. Central banks are now pushing out this index to the public in an effort to distract attention from the growing inflationary prices, which are all too evident in the main index.

Eurozone inflation surges

2007-11-15T11:48:00.000-08:00

The 12 month eurozone inflation rate surged to 2.6 percent in October from 2.1 percent in September. Meanwhile, inflation in the 27-nation EU also spiked higher in October, rising to 2.7 percent from 2.2 percent in September.

The October surge was fuelled by record energy and food prices. Eurozone inflation is now well above the ECB's preferred level of close to but less than two percent.

The data on food prices was particularly disturbing. European prices for bread, cheese and other food increased at the fastest annual pace in more than five years. Food-price inflation in the 13-nation euro region accelerated to 3.8 percent last month, the highest rate since March 2002 and up from 2.4 percent in September.

Time for some interest rate increases perhaps? Or are there some European Banks, overloaded by US subprime CDOs, that need low rates and more liquidity?

US inflation - no sign of relief

2007-11-15T11:44:00.000-08:00

The US Labor Department said its consumer price index rose 0.3 percent in October, while core prices, excluding food and energy costs, rose 0.2 percent. Prices were 3.5percent higher than a year earlier, the biggest 12-month increase since August 2006.

And the Fed is still thinking about cutting rates?

Today's top inflation stories

2007-11-15T08:47:00.000-08:00

Seeing little inflation, Bank of England ready to cut rates – GATA
Yen declines against other currencies as subprime concern eases – Bloomberg
The Canadian dollar, what happened? – HoweStreet
Gold skids as dollar rises, gold falls – Bloomberg
Gold bugs riding wave of rising prices – GATA
Gold and silver closing report – SilverSeek
Gold closes up 2%; copper rallies nearly 6% – MarketWatch
What's happening? – GoldSeek
Adrian Day's insights on gold and the market – SeekingAlpha

Today's top inflation stories

2007-11-14T11:03:00.000-08:00

What's happening? GoldSeek
Adrian Day's insights on gold and the market SeekingAlpha
Where's it all going? 321gold
Gold edges higher after steep decline – MarketWatch
Bank of America sees $3 billion loss on CDOs news yahoo
Countrywide Warns Against Junk-Bond Rating NY Times
House prices to keep sliding with no bottom in sight Reuters
Miami condo at ground zero in mortgage fraud Reuters
Bank of America sees $3 billion loss on CDOs news yahoo
Countrywide Warns Against Junk-Bond Rating NY Times
Pawn shop's business booming inside bay area
Mortgage Woes to Sink Property Values Moneycentral
Mortgage meltdown washing across whole communities Central Valley Business Times Foreclosures: Why Cleveland? money cnn
Carnage on Wall Street as loans go bad bbc
Subprime mortgages lead to subprime currency GoldMau
Royal Bank hit by subprime charge The Star
Who's watching the big banks? Wall Street Journal
Bank of America to write down $3 billion in 4Q Associated Press "Hysterical" U.S. bond investors threaten commercial property Financial Times

Chinese economy now exporting inflation

2007-11-13T06:17:00.000-08:00

For the last decade, China exported cheap goods that kept inflation rates elsewhere down. Now, the Chinese economy is heating up and inflation is rising. Prices are now increasing 6.5 percent; a faster rate than at any time during the last 11 years.

Some of the CPI sub-categories are increasing at double digit rates. Food prices are up 17.9 per cent, with pork up a shocking 54.9 per cent. Fresh vegetables rose 29.9 per cent while eggs are up 14.3 per cent.

In recent months, the chinese central bank has tried to choke off price rises by raising rates and trying to hold back credit growth. Already this year, the central bank increased interest rates six times and raised the proportion of deposits banks must hold in reserve nine times to an all-time high of 13.5 per cent. However, these measures have done little to hold back inflation. Prices just keep on going up.

Higher prices in China will inevitably lead to higher export prices. Eventually, Chinese inflation will spread out across the world, reversing the process that kept world inflation in check during the first half of this decade.

UK inflation rising faster than expected

2007-11-13T05:57:00.000-08:00

Despite increasing interest rates to 5.75 percent, UK inflation is again rising. The interest increases did offer some temporary relief, however, the combined effects of higher fuel and food prices pushed the inflation back onto an upward trend. The consumer price index is now 2.1 percent and now firmly above the central bank's target. The more accurate retail price index is up at 4.2 percent.

Inflation is likely to keep on rising. Yesterday, the Office of National Statistics published output prices. These numbers came in at a ten year high. This "factory gate" prices will shortly feed into consumer prices, keeping inflation on an upward trend for some time to come.

Today's top inflation stories

2007-11-13T05:54:00.000-08:00

Taking Out the SIV Garbage safehaven
Builder Dunmore Files Bankruptcy money cnn
More banks brace for subprime spanking usa today
Subprime Losses May Reach $400 Billion Only $400B? bloomberg
Housing glut pushes luxury builder into downward spiral sun sentinel
Countrywide Issues Ratings Warning wsj
SIV's and CDO's are put together, sold and traded club.ino
Super SIV to the Rescue? city-journal
Tech stocks plummet anew TheStreet.com
How to recognize a financial mania when you're the middle of one Elliott Wave International
Financial wizard manipulation Economicrot
The cream of the crop is crumbling Minyanville
This time it's different SafeHaven
Wall Street playing with more funny money Fortune
US Dollar Devaluation Signals Risk Of Accelerating Global Hyperinflatio SafeHaven
"We will heat our homes with your dollars" iTulip

Today's top inflation stories

2007-11-09T09:11:00.000-08:00

Top issuers of CDOs Reuters
Investors shred Bernanke's outlook, bet on rate cuts Bloomberg
Consumers in 'danger zone' of worry MarketWatch
What happens after gold breaks the all-time high? Resource Investor
Gold eyes all-time high on currency crisis fears GATA
Gold futures surge as safe-haven rally continues MarketWatch
What happens after gold breaks the all-time high? Resource Investor
Gold eyes all-time high on currency crisis fears GATA
Gold futures surge as safe-haven rally continues MarketWatch
A real estate speculator goes from boom to bust New York Times

Today's top inflation stories

2007-11-08T07:06:00.000-08:00

Unseasonably higher, gas prices add to strain on U.S. consumers – New York Times
Credit crunch, act II – CNN Money
Robert Rubin and Ben Bernanke death embrace – SafeHaven
Silver streak – Resource Investor
Goldbugs celebrate again – TheStreet.com
Silver hits highest mark since 1981 – Los Angeles Times
Credit Suisse report sets gold market on fire – Resource Investor
Manipulation of U.S. financial markets has gone bonkers – 24hGold
Breakout day for commodities – 24hGold
European Central Bank holds rates steady for fourth month – MarketWatch
Sarkozy says dollar drop risks triggering trade war – Bloomberg
Dollar drops to record low as Chinese talk of diversifying reserves – GATA

The cost of a night out rises

2007-11-08T06:54:00.000-08:00

Now that beer prices are rising, it is about time for central banks to exclude alcohol prices from their measures of core inflation. Fuel and food prices are already excluded.

Fewer beer and pizza nights as prices soar

Cost inflation is a growing headache for companies around the world as a mismatch between the supply of and demand for food, metals, oil and other commodities continues to widen.

This week Credit Suisse predicted that agricultural crop prices would continue to
soar. It said global food production needed to rise at 3.3pc a year to keep pace with the dietary needs of a growing population and expanding biofuels industry, but due to expansion and slowing productivity improvements it is likely to rise little more than 2pc.

"Agricultural markets are straining to keep up with demand, and prices have been spiralling upwards. Is this a temporary issue? We think not," Credit Suisse analyst Andrew Garthwaite concluded.

Fed members getting nervous about inflation

2007-11-08T06:45:00.000-08:00

After recklessly cutting interest rates by 75 basis points, some Fed board members are getting a little nervous about monetary policy. According to the New York Times, resistance is growing to further rate cuts.

It is a little late for a fight against Bernanke's responsibility: $100 oil is already here. Inflation is rising and the Fed is cutting rates.

Within the Fed, Resistance to Further Rate Cuts

By EDMUND L. ANDREWS

WASHINGTON, Nov. 6 — Even if the economy slows sharply in the final quarter of this year, some policy makers at the Federal Reserve are opposed to cutting rates again at their next meeting, in December.

In an unusually blunt interview, the president of the Federal Reserve Bank of Philadelphia said he already expected growth to slow to an annual pace of 1.5 percent or less. But he said he would not support another rate cut unless the slowdown appeared to be even sharper than that.

Charles I. Plosser, president of the Philadelphia Fed, said he “would not be surprised” if fourth-quarter growth was 1 percent to 1.5 percent. “That’s already built into my forecast,” Mr. Plosser said Monday in his office. “The key here is that growth would have to be less than the forecast to cut rates again.”

Few other Fed officials have spoken as bluntly as Mr. Plosser, who is considered among the Fed’s more hawkish policy makers. Still, analysts say he is not alone in his views. “This is one of the most hawkish committees that I can recall,” Laurence H. Meyer, vice chairman of Macroeconomic Advisers and a former Fed governor, wrote in a research note to clients. “The committee is not inclined to ease in December, and it is not convinced that any further easing will be required. However, the market simply refuses to hear it.”

Today's top inflation stories

2007-11-07T10:54:00.001-08:00

Threat of forced sales grows for CDOs Financial Times
Stocks drop on slumping dollar, mortgage concerns Bloomberg
Is Bernanke facing a death spiral? Minyanville
GM posts its biggest quarterly loss New York Times
Morgan Stanley may be next to write down assets New York Times
Bond buyers are losing confidence New York Times
Downgrade of bond insurers may prompt new credit panic GATA
Banking crisis - what banking crisis? Financial Sense
"Yesterday's excesses" now haunting Paulson, who helped create them International Herald Tribune
Citigroup writedowns may be as much as $13.7 billion Bloomberg
Credit crisis: The used car analogy Wall Street Journal
Soros expects 'serious' economic correction Reuters
Oil hits new records on Mideast blasts Associated Press
Oil prices soar nearly $2 a barrel Associated Press
New car sales fall as buyers shun debt SignOnSanDiego
Erasing $120 billion in market cap Wall Street Journal
Bond issuance plunges amid credit fears Financial Times
The next shoe to drop in the subprime mess TheStreet.com
Bonfire of the financials Forbes
The 1987 crash: A dress rehearsal? Motley Fool
Silver hits highest mark since 1981 Los Angeles Times
Credit Suisse report sets gold market on fire Resource Investor
Manipulation of U.S. financial markets has gone bonkers 24hGold
Breakout day for commodities 24hGold
Gold reaches 27-year high, silver rises Bloomberg
Gold is a win-win proposition SafeHaven
Major mines desperately seeking new gold rush Resource Investor
Gold down, but holding above $800 Forbes
Dollar drops to record low as Chinese talk of diversifying reserves GATA
One of the costs of rate cuts - a collapsing dollar Common Sense Forecaster
Romeo must die, holding dollars? That was a mistake Kitco
Dollar probes new euro depths, slips versus sterling MarketWatch
Yen gains as Citigroup writedowns prompt carry-trade reduction Bloomberg
Supermodel joins hedge fund managers in dumping dollars GATA
Beazer Homes eliminates dividend MarketWatch
IndyMac Mortgage loss dwarfs its own forecast New York Times
State must prepare for lost revenues from foreclosures Oakland Press
Nashua area foreclosures on the rise Nashua Telegraph
Jumbo loans still scarce in high-cost areas MarketWatch

US Fed keeps pumping out the money

2007-10-24T08:47:00.001-07:00

The US money supply is increasing sharply. Currently, the 12 month growth rate is running at a fraction under 7 percent. More money means more inflation, and a depreciating dollar.

Today's top inflation stories

2007-10-24T08:46:00.001-07:00

Gold and RMB: Last shoe to drop for the dollar – Goldmau
The ultimate guide to inflation – CurrencyTrading.net
The dollar - how low can it go? – Resource Investor
U.S. vetoed mention of falling dollar in G-7's statement – GATA

2007-10-22T07:52:00.000-07:00

Greenspan "didn't get it until very late in 2005" morganflorida.org
Time for the Banks to Face the Hangman counterpunch.org
Lessons from the credit crunch economist.com
Levitt and Sons halts work on houses tcpalm.com
Housing Declines: Don't Forget About Inflation Charles Hugh Smith
Price Declines Shake Buyer Confidence realtownblogs.com
Paul booed twice MSNBC
Plummeting home prices: a crash or a correction? SignOnSanDiego
The dollar how low can it go? – Resource Investor
U.S. vetoed mention of falling dollar in G7's statement – GATA
Yen rises as stock market declines spur cuts in carry trades – Bloomberg
G7 seeks to sharpen message to China on currency – Reuters
Dollar hits a new low, oil hits a new high – New York Times
Sakakibara Says Dollar May `Plunge,' Forcing Response Bloomberg
With euro at new high, pressure mounts for action on dollar International Herald Tribune
Dollar falls to record low versus euro Bloomberg
Gold and stocks have been holding hands. Why? New York Times
Asian stocks tumble on Wall Street Selloff marketWatch
Powers vow in 2007 as in 1932 iTulip
Barclays, RBS prepare emergency credit with Fed GATA
Get ready for the big squeeze New York Times

Oil prices hit $90 a barrel

2007-10-19T08:34:00.000-07:00

Oil prices soared passed another record today, reaching $90 dollars per barrel. The rise on fuel prices seems remorseless. In all likelihood oil will reach $100 a barrel by the New Year.

Why are oil prices rising? Today, the newswires suggested that the sudden rise on prices was due to political uncertainties in the middle east. Turkey might invade Northern Iraq, while the US might bomb Iran.

However, such explanations ignore the deeper reasons for spiralling inflation throughout the world - excess money supply. It is an old fashioned explanation, but despite its tired comportment, it remains the best explaination for recent price developments.

For the last six or so years, the central banks of North America, Europe and Japan have kept interest rates low and allowed credit to grow at unsustainable rates. Most of this credit went into housing and personal consumption. This credit boom co-incided with the industrialization of low wage countries like India and China, who pumped out cheap goods to feed the voracious consumers in the OECD. For a time, this put downward pressure on measures of inflation. However, as China and India have grown more affluent, demand has picked up and soon Chinese and Indian consumers have started to demand more bread, milk and oil. Commodity prices started to rise and inflation started to pick up everywhere. Now food and fuel prices are rising throughout the world.

However, central banks in the OECD have assumed the problem of inflation away, though an act of extraordinary statistical dishonesty. While Oil prices reach all time highs, central banks are pointing to their measures of core inflation, which excludes oil and food. In other words, they fixed their numbers to deliberately hide the true extent of inflation.

Nevertheless, inflation is something that can't be hidden. Consumers see it every time they go to the filling staton or the supermarket. Inflation is a nasty corrosive disease. It distorts prices, generates uncertainty, robs savers, and improvishes those on fixed incomes such as pensioners and people on benefits. It is anti-poor, anti-investment and anti-growth.

Publishing core inflation measures might be sufficient to satisfy Wall Street and the City of London. However, these cheap statistical tricks will not be sufficient to avoid the horrible consequences of rapidly rising prices.

Today's top inflation stories

2007-10-19T08:11:00.000-07:00

Dollar hits a new low, oil hits a new high – New York Times
Stocks open lower as oil spikes – Associated Press

Today's top inflation stories

2007-10-18T09:44:00.000-07:00

The raging bull! – 321gold
Why are all those big guys running so hard? – Elliott Wave International
M3 expansion of 14% highest since 1963 – Right Mind
Inflation is scarier than skimpy pizza – GoldSeek
Head for the hills – 321gold
Gold bugs: "We told you so..." – MarketWatch
Gold price relativity – USA Gold
"Death of gold" claims proven wrong as gold surges – 24hGold
The U.S. gold reserve is now in play – GoldSeek
Rope-a-dope? – SilverSeek
What do you mean, "no gold bubble"? – iTulip
Japan's grannies drive up gold price – Telegraph UK
Gold surges to 760 usd on dollar weakness, geopolitical tensions – FX Street
Dollar falls to record low versus euro – Bloomberg
What factors are affecting the U.S. dollar? – Mish's Global Economic Trend Analysis
Dollar declines against euro after housing starts plunge – Bloomberg
U.S. dollar depreciation 'healthy', IMF says – Reuters
"Stunning" flight from dollar led by Japan and China – GATA

Eastern European Economies are inflating

2007-10-18T08:28:00.000-07:00

Will the new EU member states become the East Asian crisis for this decade? These economies are inflating like mad, their macroeconmic fundamentals are deteriorating, while house prices are rocketing into the stratosphere.

These economies have the smell of disaster about them.

Eastern Europe to reap its own subprime crisis

Soaring inflation across Central and Eastern Europe has begun to derail the region's booming economy, setting off alarms bells at the IMF and raising the risk of a monetary crunch.

Inflation in Bulgaria (12pc), Latvia (11.4pc), Kazakhstan (8.6pc), Russia (9pc), Estonia (7.2pc), Lithuania (7.1pc), and Romania (6pc) has reached levels that will force the authorities to slam on the brakes, endangering banks that have allowed credit growth to mushroom out of control.

Those countries that rely most on foreign debt to fund their housing booms – often
financing mortgages in euros, Swiss francs, or even Japanese yen – are already
facing a buyers' strike.

Money market rates have rocketed and the cost of default insurance has yet to settle back after spiking in August. "This could easily become Europe's subprime crisis," said Lars Christensen, Danske Bank's chief economist for Eastern Europe.

"The macro picture is deteriorating dramatically. On almost all indicators, the extremes are worse than during the East Asia crisis in 1997-1998. We have a story of over-leveraging and asset bubbles with massive excesses that are clearly unsustainable. Look at Latvia, where the current deficit has reached 30pc of GDP, and it is not much better in Bulgaria and Romania," he said.

"They could do this when easy money was on tap but that's not available any more after the global credit crunch. The situation is already turning quite serious. The money markets are basically not functioning in the Baltics," he said.

Bad news about US wheat stockpile

2007-10-18T07:39:00.000-07:00

World food prices are sky-rocketing, and now we find that US wheat stockpiles are at historically low levels. This can only mean one thing; the food inflation frenzy will continue.

Bread prices will continue to soar

USDA Drops an Agricultural Bombshell!

The USDA dropped a bombshell last week — reporting that U.S. wheat stockpiles may fall to the lowest level in 59 years! As disturbing as that is, it is 100% bullish for grain prices, especially given soaring worldwide demand for agricultural products.

Global stockpiles have already fallen to 26-year lows. World stocks of grain — that is, the food held in reserve for times of emergency — are now sufficient for just over 50 days. This is already lighting a fire under prices on your grocer's shelves. But if you think you've seen high prices, just wait … you ain't seen nothin' yet.

Our wheat stockpiles are being whittled away because of a combination of rapidly rising demand in emerging markets and terrible harvests that have been compounded by the effects of global warming.

What really shocks me — and should scare you — is that stockpiles are dwindling even as yields are growing enormously! In World War II, American farmers harvested about 17 bushels of wheat per acre …

By 1972, that nearly doubled to 33.9 bushels per acre …

And this year, it should come in at 40.6 bushels per acre!

So even though the number of acres devoted to wheat is down a third (28 million acres) from their peak in 1981, we should be growing plenty of wheat.

Corn yields are rising even more dramatically:

In World War II, the corn yield was 39 bushels per acre …

We should be swimming in corn, but that's not the case! By 1970, it was 72.4
bushels per acre …

This year, the USDA expects 155.8 bushels per harvested acre, and a bumper crop overall. So we're growing just as much acreage now as we did in World War II! Why aren't we drowning in corn?

More and more corn is being siphoned off to make ethanol. About 20% of last year's U.S. corn crop went to make ethanol. Plus, annual corn-based ethanol output in the U.S. is expected to double between 2006 and 2016. It's not just ethanol, either. The USDA says total corn usage will jump 5.3% to 763.7 million tons. With prices for other feed supplies rising, farmers are using more corn for their animals. Plus, a series of bad harvests around the world is making U.S. corn a hot commodity. Let me expand on that last point. A bad wheat harvest in the Ukraine, normally one of Europe's breadbaskets, was followed by poor harvests in Russia, Egypt, and Australia.

The USDA projects wheat supplies for the 2007-2008 crop year will fall to 307 million bushels, down 55 million bushels from its estimate last month, due to the fast pace of export shipments. Globally, the USDA expects wheat production to come in at 600.5 million tons, down from 606.2 million last month. And the USDA just slashed its estimates of Australia's harvest — again! — to 13.5 million tons from 21 million.