So, with the two stories listed below the question to ask is, "are these the type of price spikes that will create incentives for lower prices down the road?"
From Bloomberg:
U.K. inflation reached the highest since at least 1997 in May, and Bank of England Governor Mervyn King predicted it will exceed 4 percent later this year, adding to speculation that the economy will fall into a recession.
The Monetary Policy Committee ``is concerned about the present and prospective period of above-target inflation,'' King wrote in a letter to the government, after the Office for National Statistics said consumer prices climbed 3.3 percent from a year earlier last month. ``The path of bank rate that will be necessary to meet the 2 percent target is uncertain.''
.....
Policy makers ``are going to sit on their hands for the time being since there's not really much they can do for the moment,'' said George Buckley, chief U.K. economist at Deutsche Bank AG in London. ``They need to see what the economy does first.''
From Bloomberg:
European inflation accelerated to the highest in 16 years last month as food and energy costs soared, intensifying what finance ministers from the world's richest nations said is becoming a ``more complicated'' dilemma.
The inflation rate in the euro area rose to 3.7 percent, the highest since June 1992, from 3.3 percent in April, the European Union's statistics office in Luxembourg said today. The rate for May is higher than the 3.6 percent estimate published on May 30.
Soaring commodity prices have pushed up costs for companies and consumers and at the same time are posing a ``serious challenge'' to economic growth, officials from the Group of Eight nations said yesterday after a meeting in Japan. European Central Bank President Jean-Claude Trichet this month said the ECB may raise its benchmark interest rate a quarter point in July, signaling he is setting aside concerns about the economy's expansion to combat inflation.
With inflation accelerating ``it becomes increasingly difficult to argue against an ECB hike in July,'' said Carsten Brzeski, an economist at ING Group in Brussels. ``However, we still believe that a July rate hike would be a one-off, mainly to flaunt the ECB's willingness to fight any second-round effects.''
3 comments:
I heard some "pundit" on a radio talk show (just recently wrote a book) try and say that we were much better off now than in the 90's.. all around, except he did admit there might be a few places in the country where it might be a little tough. And he continued that there really wasn't that much inflation, we were just whiny in the US and like to complain.
Then a 70 year old lady (very sharp) called in and told him that her pension was $24,000 a year. And when she went to the store a 3-pack of green and yellow peppers was selling for $3.95. She said maybe at his salary level things were fine, but at her level there sure was inflation! (Pretty sharp little lady, she sounded quite with it.)
I can tell you that for the first time in years.. I have noticed prices going up at the grocery store. Used to be you could switch from beef to chicken.. now there is nothing to switch to - it is all high. My hubby and I planned well for our retirement, and I can manage the gas bill and the food bills, but I am sure spending less on other "stuff".
I don't know how those with large families to feed are managing.
Grandma Jo
I am retired. Having lived through the '70s and '80s, I planned in to my strategy, surviving a fourfold increase in living costs. This figure excludes medical and health insurance costs which are covered by previous employment. I am beginning to wonder if I have underestimated.
What I find interesting about this is that it suggests the run up in commodity prices isn't as much a factor of a decline in the dollar. If it was merely a repricing of commodities because of the weak dollar, then presumably the effects on stronger currencies would be negligible. But even when you're talking Euros and Pounds you're still seeing inflation.
Having said that, there may be some indirect influence by the dollar at the least. The decline in the dollar, combined with high demand for commodities created an initial surge in prices. That initial surge has lead to speculative investment in commodities and that has further run up prices which are affecting everybody, regardless of the currency they hold in their accounts.
This is, of course, bad. Having an asset bubble in the stock market more abstract. It affects investors, but it doesn't directly affect the fundamental structure of the economy. A bubble in commodities is far nastier because it actually distorts the basic supply and demand of the commodities that underpin the entire economy. But I guess this is what loose monetary policy gets you.
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