ECB’s Blunt Press Statement Today Screams One Big Idea, Stagflation Has Arrived

Link: https://mishtalk.com/economics/ecbs-blunt-press-statement-today-screams-one-big-idea-stagflation-has-arrived

Excerpt:

The Governing Council today decided to raise the three key ECB interest rates by 75 basis points. This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to our two per cent medium-term target. Based on our current assessment, over the next several meetings we expect to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations.

Inflation remains far too high and is likely to stay above our target for an extended period. According to Eurostat’s flash estimate, inflation reached 9.1 per cent in August. Soaring energy and food prices, demand pressures in some sectors owing to the reopening of the economy, and supply bottlenecks are still driving up inflation. 

Price pressures have continued to strengthen and broaden across the economy and inflation may rise further in the near term.

Very high energy prices are reducing the purchasing power of people’s incomes and, although supply bottlenecks are easing, they are still constraining economic activity. In addition, the adverse geopolitical situation, especially Russia’s unjustified aggression towards Ukraine, is weighing on the confidence of businesses and consumers.

Author(s): Mike Shedlock

Publication Date: 8 Sep 2022

Publication Site: Mish Talk

The ECB Has a Huge Dilemma: Price stability or Bail Out Nations

Link: https://mishtalk.com/economics/the-ecb-has-a-huge-dilemma-price-stability-or-bail-out-nations

Graphic:

Excerpt:

The spreads between German government bonds and those of the PIGS (Portugal, Italy, Greece, and Spain) have skyrocketed in recent weeks. 

This comes while Eurozone inflation is at a record high 8.1 percent. 

….

On June 16, Bloomberg reported Lagarde Tells Ministers ECB Plans for Limit on Bond Spreads

….

There is no single interest rate that makes any sense for Germany, Greece, Spain, Italy, and Portugal. 

The Fed is struggling to find the neutral rate, and I believe will overshoot, but at least there is a neutral rate. 

Lagarde is on Mission Impossible with 19 countries in the Eurozone, all with a different neutral. 

In theory, the sovereign bonds of Germany and Greece are the same. Default risks are the same.

In practice this is total nonsense, and for the third time the idea is being tested. 

Author(s): Mike Shedlock

Publication Date: 20 Jun 2022

Publication Site: Mish Talk