The ECB is still recklessly delusional.
By Wolf Richter for WOLF STREET.
Wholesale prices in Germany – an indicator of what is further up in the pricing pipeline for consumers and businesses – spiked by 16.6% in November, from a year ago, the worst increase in the data going back to 1962, and up from 15.2% in October, and from 13.2% in September, the German statistical office Destatis reported today:
Given the decline in wholesale prices last year, and to eliminate the resulting “base effects” that everyone has been dragging out to brush off this bout of red-hot inflation, it’s helpful to look at the month-to-month increases over the past six months: Annualized June through November, wholesale inflation spiked by 13.6%.
And to see beyond the base effect by a different method, over the past two years, so since November 2019, wholesale inflation spiked by 14.5%, jumping right over the trough in the middle.
The index values of wholesale inflation show this historic spike without any of the base effects and other excuses:
Here are some of the biggest winners by category, price changes compared to a year ago:
- Mineral-oil products: +62.4% year-over-year.
- Ores, metals, and semi-finished metal products: +60.3%
- Timber: +41.1%
- Grains, raw tobacco, seeds, and animal feed: +30.3%
- Agricultural raw materials and live animals: +21.7%
- Milk, dairy products, eggs, vegetable oils: +11.8%
- Coffee, tea, cacao, and spices: +14.1%
- Lumber, construction materials, paints, sanitary ceramics (toilets, ceramic washbasins, etc.): +15.3%
- Flour and wheat products: +7.5%
All product categories showed year-over-year price increases, and none showed price declines. Everyone is raising prices and passing them on to the next business in line, and those businesses are paying those prices, confident that they can pass them on, ultimately to the end user, either a business or the consumer.
And it has been filtering into, but with a lag, consumer price inflation in Germany, which reached 5.2% in November, the highest since 1992.
Germany’s surging consumer price inflation has also been brushed off with the infamous “base effects,” including those linked to the VAT reductions in 2020. The Fed too had brushed off the US inflation with the “base effect.” But sooner or later, these excuses are going to run out of base effects, and in Germany this will happen January 2022, when inflation pure and simple will be seen just raging on its own.
The ECB, with an eye on the Fed, has been even more reckless in talking away the inflation that is now raging in many parts of Europe. But given the recent data, and given the U-Turn by the Fed on inflation, the ECB will likely but gradually and far behind even the Fed acknowledge that this is a massive problem that won’t just go away on its own.
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Wow, those rocket increases in food prices! And for a country that is not self-sufficient in food production.
As the Sierra Nevada snowpack keeps on disappearing, the US will not be either.
Are they prioritising growth?
Is their employment increasing?
You cannot usefully discuss costs without discussing what was bought for those costs, if anything.
Amen. Let us hope for massive snow falls this winter so our crucial, California farms/groves get enough water to keep going. Anything is possible in this climate chaos.
We will face increasing prices particularly since Americans are addicted to Chinese products and the PPI for Chinese producers is going skyhigh. While I own two German cars, a classic one of which I am afraid to get fixed due to the ludicrous rises in parts prices, which will make parts even more ludicrously expensive in 2022, most Americans are less affected by price hikes in Germany or other EU countries: the percentage of their products that they buy is tiny.
SWE (Snow-water-equivalent) in the Sierra-Nevada mountains has always been erratic.
In the past 5 years, California has had 2 of the highest snowpack levels, yet, since it doesn’t fit “the sky is falling” political objectives, it was little reported.
Well, California is famous for being dry one minute, very wet the next. I would hate to go back to the fairly recent past, where California had droughts lasting some 100 years and 50 years and yes, 200 years….. followed by wet periods, followed by dry periods. All these droughts I mention, were in periods of very low Co2. Luckily, since the world started to come out of the mini ice-age of the 1600s, California has never been so wet.
Just so we get some contra indicators. “Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result.”
Yes, there are always bullshitters out there, like the source you quoted.
Wolf, I like the way you bring down to earth commentators whose economic knowledge is deficient, as is evident here. You are right about the Italian trade surplus against the person who denied what is the reality.All your articles offer valuable insights and I am grateful for them
First to say Weimar.
Godwin’s Law comes next…
Germans know inflation. Get the wheelbarrows ready.
“Weimar?” City in Germany where the country’s post-WWI constitution was drafted. The document was considered very liberal for its time but it led to very divided government and in the end was replaced by a dictatorship. For many, the Weimar constitution is closely linked to the the currency collapse that took place about 4 years after its adoption. The lawyer who drafted it, Hugo Preuss, died in 1925.
Just to give some context on the sort of inflation the Papiermark experienced in the early 1920s… the lowest-denominated banknote in Germany in 1920 was a 10 Mark note. By 1924 the smallest note was a 10 trillion(!) Mark note.
Dr Havenstein is rolling in his grave
*sighs* The Weimer Republic, an interwar governmental body based in Germany which was on rocky footing for much of its existence, consisting of runaway inflation when currency literarily had to be “wheeled in” on wheelbarrows.
Folks, if you’re going to drag old Weimar out of the barn, at least learn how to spell it.
Weimar, and out-of-control inflation, was a bit more complicated, with the onerous War reparations demanded by France.
John Maynard Keynes predicted the inflation and ultimate political disaster in Germany in his book “Economic Consequences of the Peace” from the Treaty of Versailles.
Is it time to go long on wheelbarrows?
No, but investing in dual citizenship might come in handy.
New Zealand and outer space. That’s where the billionaires are moving.
NZ is a Communist country!
I am Not sure those billionaire’s dough would be safe there?!
Outer space though would be a great option once you work out how to combat the deterioration caused by UV & gamma rays on your doge coins!! 🤣🤣🤣
I am sure though Mr “Engineer bullshit” have surely worked that out !
How about plywood……cause they are boarding up the country
Beware what curse you wish on others. WE may need wheelbarrows too and for the same reason if things continue as they are.
The northern European countries, whose middle class tends to have more “savings”, are going to experience some very interesting politics over the next few years as inflation basically devalues their worth. Even more questionable is whether Italy or Greece can stay the course and remain in the Euro zone.
It is Italy who’s people have money. Northern Europeans have money but also large mortgages. Also Italy makes its money by making stuff. They are a cheaper Germany. And the had a lot of trouble because China is also a cheaper Germany. But China is becoming more expensive so the expectation is that Italy will be going great. Especially because the economic policy in Europe, as in states can spend more money, is returning to saneness.
Italy makes good quality industrial products. China, buy and regret.
Geez, that’s looking bad. If only something was invented in the last decade that could provide the Germans with a decentralized and trustless store of value.
Yeah, BTC is down 26% in just one month. “Trustless” for sure for sure :-]
Oh, well said.
one month? Cool, now do one year.
Yes, will be interesting what BTC will look like next December.
We will see who has the last laugh, Wolf :)
It’s a shame BTC can’t be spent on groceries and gasoline in Germany (or anywhere).
Die wunderbare Welt des westlichen Kapitalismus!
Economic policy coming home to roost. Germany got rid of their strong currency and vendor financed Spain, Italy, Greece, Portugal and France. Chickens coming home to roost and Germans going to pick up the tab with inflation. Better than not getting paid back at all I guess.
Is it true it’s easier to buy gold in Germany than US?
Can’t say about Germany, but in Austria you can buy gold at bank branches, easy-peasy.
Exactly the opposite in fact. The weak EUR is the basis of German growth. A return to a strong DM would cause deflation and kill the economy.
The old West Germany did just fine with a strong currency and lower inflation than its peers. For decades. Deflation is an imaginary boogieman used to convince people that inflation is somehow a good thing.
Can’t say about US, but in Germany, there are a lot of shops who sell, even at the main station in big cities. But with purchase of more than 2.000 Euro in cash, you need to prove your identity, because of allegedly money laundering.
How can the Fed manage to keep internet rates so low given the high rate of inflation? I understand the Fed controls the funds rate but how can all the investors out there not demand a rate that at least keeps up with inflation
I think the answer to your question is that the Treasury has been starving the market of new issuance, due to the debt ceiling and at the same time, they are buying Treasuries, so that just starves the market and there are certain traders that will continue to invest in Treasury bonds as long as that happens.
But, the debt ceiling limit has been raised, so now the Treasury will need to start financing the debt spending plus they need to put about $500 billion in the Treasury, to build their normal cushion.
But the impact is going to be over multiple months, as each month another $300 billion is going to be added to the Treasuries in circulation.
This is simple supply and demand. The Fed create artificial demand with purchases and the Treasury stripped supply by not issuing new debt.
My bet is we see 4% mortgage rates by April at the latest. And that will kill the real estate market. Watch massive price declines in the 2nd half of the year, in time for the Democrats to lose both House and Senate.
The country will turn even more against Biden once their assets get stripped of value.
4% mortgages aren’t high at all. I doubt it will cause a real estate crash. 6-7% for sure and I do believe a real estate crash is coming but a sub 1% increase won’t do much imo. Just further slow down the top of the bubble a bit. Added in with spring buying seasonality I don’t see it in your scenario. But here’s hoping. I’d love to see it crash and only have a 4% mortgage since I’m sitting on the sidelines. I don’t have that level of optimism however.
Let’s not forget what mortgage rates were back in the 70s. Got up to 10-12% didn’t they?
My first and only mortgage was 9.25% in 1976 on a house that was purchased for $22,500 in Mass., property taxes averaged $600/yr. Sold it in 1985 for $73,000 and paid off the mortgage, buying another house further away from the coast, paying cash. For context, last year the first house sold for almost a million. Property taxes at the time were over ten grand.
Sold the second house and purchased another with acreage in a rural area. Great retirement area without the congestion.
The Fed has in effect been good to me and others of my generation. Unfortunately the young will not have the Fed helping them out.
1999 and 2006
inflation in the US was less than now…
and the 30yr mortgage was 6%
This is how far adrift the Fed has pushed things.
Fed owns nearly $6 Trillion of federal debt…..
in 2008 it was .48 Trillion
It’s psychological, regardless of the underlying supposed reason.
The public has also mostly turned over their savings to professional fund managers who don’t have the same motives because it isn’t their money.
Treasuries are not a horrible investment compared to stocks, junk bonds, cash, REITs most likely. Fed’s got it all compressed to give total return next to nothing for a decade in real terms.
what are “internet rates”? :)
My internet rate is far too high. But the colluding “competitors” in the internet provision game compete on everything but price. Not sure of the relevance to the article though!
This shit is how you get Brown Shirts in the streets. ECB bank president needs to be arrested. She is a criminal already and now an enemy of the security of the German people. Harsh words but inflation like this will have violent repercussions for a manufacturing export economy which is Germany.
The ECB does exactly why it was established in the first place. After the fall of the Soviet Union, France only agreed to the unification, if Germany give up the Mark and establish a single currency. A leading french paper called the Maastricht treaty “Versailles, but without the war” (=WW1).
Now the other european central banks (Banque de France, Banca d’Ialia etc) owe the german Bundesbank over 1 trillion Euros because of the inter-european trade deficits – something the different local branches of the FED settles every year. So, basically, Germany is lending France, Greece, Italy and Spain the money to buy a Mercedes.
A little confused here. If inflation is rampant in Germany, that means the euro is being devalued. In terms of exports, that dynamic would increase exports because they would be, by definition, cheaper to buy. Unless the input costs keep the German products expensive enough to overwhelm the devaluation?
Inflation may benefit corporations that get to increase their prices and thus get to boost their revenues and possibly profits; but it doesn’t benefit consumers that have to pay those higher prices.
“If inflation is rampant in Germany, that means the euro is being devalued.” – only against the products that are price-inflating.
“In terms of exports, that dynamic would increase exports because they would be, by definition, cheaper to buy.”
Not necessarily. Currency devaluation vs. products can be different than devaluation vs. other currencies. If all currencies are devaluing together there’s no comparative advantage for German exports.
In this case the Euro is still in the same general range vs. the dollar (1 Euro worth $1.05-$1.25) that it’s been in since 2015.
“Unless the input costs keep the German products expensive enough to overwhelm the devaluation?”
Exactly. Prices of German goods are going up not just in Euros, but also in dollars, Yen, Yuan, Pounds …
Inflation is going to be labeled ‘cyclical’ next :)
Crime is about to rise ‘unexpectedly’.
The German inflation rate is Transitory.
Relax. It is temporary.
Soon, it will no longer be 13-14%.
It will soon, temporarily, be 20, 25%. Temporary.
Frau Merkel must be delighted she won’t have to handle this problem.
She’ll be far too busy writing her memoirs anyway.
I reckon she pulled the ‘plug’ on the EU when she had to finally give up control.
NS2, Ukraine, energy, Brexit, China and now Germany’s big favourite ‘Inflation’. The German central bank was at war with the ECB for all of Ms’s reign. The long term and well respected German banker just bailed out at election time. That says it all.
I got chided for mentioning the ‘dirty’ word Gerxit here months ago. If these charts don’t do it for the inflation averse Germans nothing will IMO.
Ah! ha! ha! Monsioure Macron will sort it all out. Not.
Great watching from old Brexit here.
Better buy that Bimmer now, before the 60.3% ore and metals increase hits.
Thanks for using the proper terminology…
The American people are a bunch of fools who deserve to lose everything they have. Not so for the Germans. They are going to demand action. I would not be surprised to see Germany bail on the EU if action is not taken quickly.
Germans won’t do a darn thing, like in the USA. The population either lacks or is too foolish to use the levers of control it has over government.
For example, Germans kept Merkel in power, who flooded the country with immigrants. This was terrible for national unity and standard of living. Germany has over 21 million immigrants, 2/3 of whom are from outside the EU. Unsuccessful countries export their domestic problems and culture via emigration.
Similarly, the USA no longer has a common set of values or culture. Immigration was a big part of that, but hardly the only issue. Now it’s too late, just buckle up.
Wolf usually deletes defeatist or anti-American comments like this, let’s see what happens here. Probably thinks I’m a Russian bot or something.
Edit: 21 million is the population of migrant background, many of whom were born in Germany
The EU is on its way to being conquered demographically. I’ll let everyone guess by whom and from where.
Not hard… and you are right…
The minute you allow appeasement, you are doomed…
And you have destroyed the efforts of those who have come before you whose sacrifices allowed you to have the life you are giving away without contribution from the recipients…
Well your name is Ivan but I don’t hold that against you
Check out side 1, track 4 of ‘Sandinista!’ by The Clash (1980 3-vinyl lp). ‘Ivan Meets G.I. Joe’
Speaking of Germany, my Econ 101 Prof @ the U of MN, Walter Heller, helped form the Marshall Plan and was instrumental in re-establishing the Deutsche Mark after WW II.
But just after that, when the Iron Curtain went up, Dad was a radar technician and repairman in the US Army Air Corps. His work was an important piece that helped keep the airlift operational.
The ECB is headquartered in Frankfurt; Germany does not control its own currency.
And likewise, in truth, the USA does not control its own currency. Although in theory, Congress does.
Ted T.: The Bimmer is already bought. She is on life support (aka battery tender) in the garage as 25 cm of snow fell this weekend. No Blizzaks or road salt for my sweet car to worry about. However, there is a new Cayman GT4 at the local Porsche dealer.
Its not about a particular people, the majority of all peoples are financial illiterates. What percentage of Americans knows about the Fed and how they function? I bet it will be less than 5%.
Same for others, most people think money is honest, you just need to work harder.
That is how they get way with theft, because we consent to it by our own ignorance.
The pain threshold is much higher, we could be experiencing 10 to 15% inflation rates for years and nothing will happen.
Look at Turkey, why arent people revolting?
Germans have healthcare, employment insurance, good tenant rights.
The idea that they have conceded core rights on the same level as the USA is not correct. Nobody has folded like Americans.
I think key in US is you have to have rural property of 10 acres or more. You have a lot of rights on your own property in conservative states. Most sheriffs are conservative and will leave you alone unless you are selling drugs.
Except Australians, I know, I live here.
Healthcare comes at a price (as a contractor I pay over €500 a month). Pensions and employment “insurance” are also hefty deductions from the payslip. The German’s have also been paying the one-year “temporary” “solidarity” tax (unification with East Germany) since 1991.
Income tax (my bracket) is near 50% but the other stoppages take my gross income down by 60% or so.
I’m in a high-earnings group, so the pain of this inflation will be felt by the majority who earn much less than me.
At the moment, the only thing on the news is “corona” and “mandatory vaccines” and “far-right protestors”. Perhaps by design, inflation, NS2 and high-energy prices are simply not mentioned.
To another comment. Yes, gold and silver can be purchased easily in Germany. Many small precious metal stores who’ll buy your “old gold” and change it into (fiat) money but also bigger concerns.
Gold is not subject to VAT, silver is (at 19%!)
As a rule you purchase ananymously but larger amounts (over €10000) are reported as part of the “money laundering” laws, so to remain ananymous, the purchases must be smaller and in cash.
Hear! Hear! No add’l comment necessary.
Having lived in a modified form of Turkish culture for three years (Turkish Cyprus), I was interested in information about Turks in Germany. Here is the ethnic distribution in Germany (worldatlas dot com):
1 German 80.0%
2 Turk 3.7%
3 Pole 1.9%
4 Russian 1.5%
5 Italian 1.0%
6 African German 1.0%
7 Arab 0.6%
8 Romanian 0.5%
9 Greek 0.5%
10 Others 9.3%
I remember articles/books/films, about doing Turks grunt work for cheap, like various cohorts of immigrants have in the United States. I like Turkish culture except for the built-in corruption. Here is a more positive view of immigrants in Germany (from above website):
“These ethnic minorities significantly contribute to the German culture regarding art, music, cuisine and lifestyle. Similarly, German culture has influenced the way of life of these ethnic minorities. The variety of cultures in Germany has made the country advance in many aspects.”
The World Atlas site doesn’t say what date the numbers are from assuming we’re looking at the same entry, but I think they’re as of 2010. The site you mention shows population at 81 million, which matches 2010, whereas Germany is ~84 million according to most sources. The percentages from World Atlas also match another source I’m looking at, but my source explicitly says it’s 2010 – i.e. before the massive influx.
You’re right. There was a spike, that peaked in 2015. Looks like good information is on statistica dot com, this page:
If you look at the number of immigrants by country (2020), most are from countries that are relatively near to Germany (Romania, Poland, Bulgaria, Italy) and to a lesser extent Turkey, Croatia, Hungary, Serbia.
The current number of immigrants has gone down from the peak so that it is roughly equal to the average between 1991 to 2001.
The large majority of current applicants (2021) are from Syria (36,108), Afghanistan (12,505), and Iraq (7,074).
In my view, they are probably getting getting high quality people as immigrants for the most part. I was a college instructor in a context where there were a lot of Syrian students. The educated ones seemed very capable and sharp intelligence. One of them told me: “In Syria, most honest people are in prison.”
Acording to a news website (welt de, owner of politico), there a now over 800.000 syrian refugees living in Germany.
I don’t know the numbers, but I guess most of them don’t even know the latin alphabet (perhaps now) and went to school for maybe 4 years in an arab country, where antisemitism is taught in schools, but probably nothing a 21st century society needs. And there aren’t a lot of low paying jobs in Germany, where these people could work. Picking strawberries, asparagus – yes, but nowhere near as many as probably needed. Truck drivers? Yes, but the training in Germany is expensive, and there is a mandatory training every 5 years.
And no nobel laureate (or even PhD) wants to immigrate to Germany, if there is a possibility to immigrate to english speaking countries. Not just because of the language, but because of the upward mobility in general. And the possibility of making millions in Silicon Valley. And the weather. Most of the immigrants from poor countries since 2015 came because of free health care and the free money.
Guess you Americans are lucky, because your immigrants wants to work.
@Tanstaafl: “Most of the immigrants from poor countries since 2015 came because of free health care and the free money.”
Your statements involve a lot of speculative judgments. Although there may be a grain of truth to them, it’s better to keep to facts expertise one has in knowing a lot of immigrants first hand. Otherwise, is sounds like you’re just spewing political crap.
Reality check for you dude. America has never had a common set of values or culture. Have you ever read a history book in your life? There’s a reason we’re known as the melting pot. And you act like it’s wolf’s problem that your crap gets deleted. Bet your the same kind of guy who says it’s a violation of free speech and the Constitution when a private website removes your post.
And I bet you’re the type of guy to engage in baseless and inaccurate ad hominem attacks :) Have a great day!
America has never been a melting pot. At best it’s been a stew where all the ingredients stay separate
and dislike each other.
If you don’t realize that you have no concept of our history. It was separatist not only by race but religion and country of origin. Catholics were not allowed to hold public office in SC until the early 1800s.
There were riots in Philadelphia between Protestants and Catholics over which Bible version would be read in school. People were shot and churches were burned. Way before Madeline Murray and her battle against school prayer.
Jim Crow laws, the KKK, Emmett Till – the list goes on forever.
The 14th Amendment was passed in 1868. Why was MLK still fighting for civil rights 100 years later?
Despite this, I sense real – albeit slow- progress.
The new traficlight coaliton in Germany stands for opening the bordrs even more than Frau Merkel and forget the possibilty that common sense would return to German energy policy due to the Greens being in the government. It is said that the incoming new head of Buba is inclined to printing ….
The German central bank fought the ECB relentlessly for years, they even tried to take them to the ECJ because some QE purchases were deemed to be illegal in their opinion. The German people hate inflation and they will have a huge choice to make between their support for the EU and their hatred of inflation.
Sound of cans no longer being kicked down the road!
What government did they elect? EU puppets? Greens and Social Democrats? I doubt that new government will bail.
The Germans wanted the Euro. They now own the debt of the PIGS. Not so smart!
The Germans did not want the Euro.
The Euro was forced on them by the French to allow unification with east Germany. France and others were afraid the Germans with the Mark could become too strong again and a thread. The Euro was the Equalizer. Even so there were the Mastrich agreement of Max. 30 % max. Debt/GDP. This was quickly watered down by the Pigs and Greece. The socialist won and the Germans work and pay. While the pigs countries live in houses most Germans live in flats in the cities. Most flats are owned by PC. Kohl and Merkel were selling out the German pensions. Luckily I live now in Australia where my Pension is all in the share market. The German pensions system was never changed to earn dividends and capital gains.
The EU was a USA project to ensure they didn’t need to get involved in European wars again. That part worked.
The idea was that the structure would contain Germany’s ‘productive’ enthusiasm by hobbling it with the other participants.
UK stayed out. Clever UK.
The Mark dominated the EU anyway and gave G dominance again, hence the Euro to hobble the Mark. Leaving aside all the unintended side effects, Boy! Did that work?
Some cheeky people call the EU the ‘Fourth Reich’ but I would never say that.
Germany bailing from the EU would be better for all the other EU members. The reality has been that the Euro is just a metaphor for the Deutschmark. Which is why Germany has such a lopsided export advantage with the other EU member states.
Over 10 years inflation is only up 20% or 2%/year.
It sounds better that way.
That is why “rate of change” inflation charts are meaningless, and misrepresenting
2.5% for ten years is a flat horizontal line….but the value of the dollar would have dropped 28%!!! (compounding and aggregation)
Germany should bail on the EU and go back to their own currency.
New world currency !
It’s coming and I’m sure that it will be carried in my smart phone rather than in my wallet.
It won’t be “yours”.
It won’t be “in” your phone.
And you’ll be lucky to be able to access “your” credit when you need it most.
But the bad money will drive out the good.
Best to have backups.
Ban all central banks and don’t forget the Bank of International Settlements, the International Monetary fund and especially the United States’ hyper secret Exchange Stabilization Fund and their $21,000,000 000
slush fund to manipulate gold & Silver, bond markets and the US dollar.
There was an article the other day saying that if the Taylor Rule was in effect, fed funds would be over 8%
The Fed cabal, and who ever hijacked the Fed, have taken this nation to the abyss…
Fed Funds SHOULD BE equal to the inflation rate, just the rate was prior to 2009.
30yr mortgages should be OVER the inflation rate, at least.
I have framed billion Reich Mark notes on my wall.
Just a few notes:
German reparations had to be paid in gold marks – not fiat.
For generations – Germans were the most anti-inflation citizens out there. I guess all lessons learned are eventually lost with “free” money.
Hyper inflation leads to misery leads to bankruptcy leads to entirely new systems of governments leads to war/civil war.
I have framed Assignats in my French countryside home. Real ones.
Based on lands and properties stolen by the revolutionaries from the clergy.
I like to look at them.
They remind me of the first step to tyranny: a central bank.
LOL! Tyranny existed long before central banks.
German reparation gave credit for Grundig, Blaupunkt, VW, ships…
no marks, no gold.
People always want to take the pain later or transfer it to someone else.
Maybe they should raise interest rates. Duh.
They don’t control that anymore.
Feds have complete control over interest rates. Bond buyers are just supplicants.
1) Inflation destroy the middle class. gov love inflation, because it reduce gov debt in real terms…
2) After wall street AAPL $3T project, the new variant will send the markets down, causing a disinflation.
3) It’s all about power. OmiXi expansion is an opportunity not to be missed : $6T programs and domination.
4) That must happen before Nov 2022 election, in order to demolish
“transitory” Joe Manchin.
5) Polls indicate gov popularity decay, but they don’t care, if they can
foist their programs.
housing: is not part of cpi. rent is (low weight). EZB is talking about including housing costs in cpi (for european measurement).
energy: most of what you pay for gazoline is tax (>50%). electric energy is very expensive in Germany with subsidies for certain big industrial consumers. Otoh you can have low consumption. WFH + wife (teacher) = 1067 kwh/year which is low even for german standards.
Again: most of the costs are taxes, Abgaben+Umlagen (don’t know the english words for it)
food insecurity: no. Germany imports a lot of food for animals (meat) which is exported then. Workers in ‘Schlachthöfen’ come from bulgaria/romania. When you look at Germany coming back after 30 years you’ll notice that most gardens of new homes don’t have apple trees anymore. Too much work. Cheaper/easier to buy stuff. Most of the fruits in the garden of my parents simply rot (my parents are old and I cannot eat them all but noone is interested. In theory there is a lot of room (not in the cities) to grow some of your food = fruit trees).
Besides that Germany imports a lot of luxery food or strawberies during winter. Noone ‘needs’ that.
Income: a lot of people I know bought a home in the last 5 years. Which was very expensive. With higher costs for living some of them might get into trouble. Especially *if* rates are sent higher. Nobody wanted to believe me when I mentioned that they should read the credit contract carefully. The bank is supposed to ask for more securities when the value of the house drops too low. Even if they are making the monthly payments. In Germany housing debt is what you cannot walk away from. ‘Zwangsversteigerung’ would be the term looking for.
Social spending: Germany’ ‘invited’ a lot of people over the last 30 years (and has a growing % of population unable/unwilling/too old to work). Most of them are not exactly productive. Instead a lot of them are part of what is the biggest chunk of what Germany spends its money/taxes on: social spending. Inflation (higher benefits) here could kill Germany.
Craftsmen: those I know try to get rid of bad customers (20%) who make too much problems (80%) and keep the good ones telling them they want to finish the job but can’t do it right now. So you can get different stories. Some might say that they don’t see much problem getting things done while others won’t get anyone answering their calls. New customers are served last.
I haven’t seen empty shelves but unknown in Germany since a long time is: product is out. Buy something else which is there.
Great insight, I’m in the US but find it interesting to hear how everyone else around the world is navigating the current situation. Thanks for posting.
These are the different categories for calculating inflation in Germany (sadly for english speakers it is in…german :D )
“Gesamtindex” (total) is 1000
“Wohnung, Wasser, Strom, Gas und andere Brennstoffe”= 324.70 is rent+water+electricity+gas(heating) for privat cost of renting.
“Nettokaltmiete” = 196.32 is just the privat cost for renting without anything added.
The funny point here is the 109.1 compared to 2015.
Good luck getting a rent which increased only by 9.1% in 6 years.
Those who rent stay where they are because moving will confront you with much higher prices when you look for (few) empty appartments. Since renters are protected in many ways in Germany you can live rather cheap when you stayed in a place for a long time. Landlords cannot increase rents to whatever they find acceptable. There is a yearly limit (or: within a period of time) for increasing rent costs.
Calculating the numbers the ezb is using is a different thing.
This means: if you own a house/appartment or if you already rented a place somewhen in the past inflation won’t hit you by that much.
Those who enter the workforce now face a different situation. They are paying market prices. Thus they are living in a different world (when it comes to inflation). In Germany we have the term ‘locked-in’ which means you would be stupid looking for another appartment because it would be almost always much more costly.
We (my wife and me = hamburg) got 9.000 Euro from our landlord for moving out (10 years ago). The landlord wanted to sell and the price for an appartment in Hamburg * without * renters is higher. Works only in crowded places with high demand.
There are a lot of rural places in Germany where the situation is different: noone wants to move there.
‘109.1’ is the number for all of Germany. Won’t help you in Hamburg, München, Berlin, Frankfurt… .
I am from Germany. Gasoline prices are a good example how retail prices are totally different from wholesale prices. About two thirds of the retail price are taxes. This year taxes were increased due to carbon tax on fuel.
Retail gasoline prices as of today compared to 2019 are 13% higher, maximum 20% higher if you have bad luck at the station. Without the increased carbon tax, The price would be about 8% higher than 2019, 14% higher on a bad day.
So you can see that we are not hit as much by rising gasoline prices as we are bad off with high taxes anyway.
“So you can see that we are not hit as much by rising gasoline prices as we are bad off with high taxes anyway.”
So the push in Germany (and the EU in general) is to move to electric cars. Nice…..but how will the government recoup the taxes it is going to lose on gasoline and diesel when there is diminishing sales of it?
I wonder if these governments have thought this through?
Taxes coming on per mile driven basis. BTW, in CA as well, gas price includes lot of taxes. this is nothing new.
The complete transition to EVs will take 20 years or so. It will be smooth. Most ICE cars produced today will be on the road for 20 years.
Taxes will be less, we will take on more debt and save us with more electronic moneyprinting to devalue Euro and debt. Inflation is used by polticians because it is felt less than taxes, at least so far.
Powell announcement in the AM……This inflation in Germany will not affect the US……..after all we are protected by the Atlantic Ocean. A modern economic theory developed by the same folks as developed Transitory.
Meanwhile back at the secret FOMC meeting off the record…….hahahaha……..lets stick that on the middle class…….. you know we want 2 percent inflation and 4 percent unemployment…….raise rates……..hahaha…….lets tell them we are concerned……..so 2 years from now we are thinking of meeting about it………..Jay…….you are so funny……..pass the toke.
We are going to test the social fabric of this country……hope it holds. Folks around here are not the same as 1929……more like 1917. Angry.
How’s the Turkey Lira doing?
Country about to implode.
J Powell, the inertia of what you have set in motion may not be reversable ….you have erred, big time. And you are way late.
Who is controlling you? For your guide has not been the mandates of the Federal Reserve Act for two years.
Check out target2!! German bank deposits are an “accounting entry” from the never-to-be-settled European interbank settlement system Target2. So when an Italian buys a German car on credit, the Italian banks and German banks settle through target2, minus on the Italian side, plus on the German side. This only needs to be settled when the EU breaks up.
As has been pithily pointed out, this is the equivalent of the Germans having absolutely won at Monopoly and owning all properties, lend the other players cash just to keep on going.
This is in addition to the ECB printing funds to hand out to the southern nations, which then use the money to purchase high value goods from german, so all the reflation attempts in the south end up as, yes, German inflation. The southern nations lose money to the northern countries and there is no fiscal union to rebalance.
Now this is intractable because the Germans aren’t going to get the money, the debts are too large, so how to proceed and presumably the goal will be to inflate away the debts. France and Italy recently did some deal that they will defy German probity within the Eurozone.
This for many is why Brexit, or just running in an attempt to get clear, was a really good decision for the UK and not, as often suggest, an act of deranged fascism.
Italy for example, is in debt for half a trillion Euros. Then the others come up to -over a trillion euros that for the Germans is bank vapor-. Every so often you can also read the Germans wondering how come the Italians retire so much earlier, and have higher individual net worths, plus have the largest gold reserves in the EU. Thats not singling Italy out, its just an egregious outstanding example out of Portugal, Spain and Greece.
Before you get too tangled up in the idea that Italians are buying German cars on credit, please note that Italy is an industrial power that supplies German manufacturers with components. It also builds its own cars and high-speed trains and heavy trucks and what not. Italy has a trade SURPLUS.
I suggest to you that in the main Italy doesn’t have that kind of surplus. A trade surplus is not always good and in this case for Italy it is not.
The Italian surplus is because Italians earn more from their overseas investments, than foreigners earn from their Italian investments.
Its not because they are an export powerhouse of real goods although of course they have some successful exports and supply Germany and drive Fiats. The Italians get their money -out- of the country and this printed money comes from the ECB via state borrowing hence the extraordinary level of government debt (held also by Italian banks).
This pseudo surplus also has the effect of keeping prices higher in Italy than they should be.
Described better than I can put it here. Italy is recognised as a baked in tragedy of youth unemployment and particularly in the south with an approaching 50% poverty rate.
I said TRADE SURPLUS, exports of goods minus imports of goods, which has nothing to do with income from overseas investments and getting money out of the country or whatever.
You must be thinking about the current account balance or something.
Maserati CambioCorsa Spyder! Yes!
I’m really surprised that the % for timber is much higher than lumber.
Central bankers have been, for more than 10 years, trying to create higher inflation to reduce the value of government debt.
Now that they have finally succeeded, do you really think they are going to start fighting inflation now? No they are not!
Central bankers are very happy that inflation, their favorite solution, has finally arrived!
They want inflation high, but not so high that people look for alternatives or panic. It’s a balancing act.
They need to cook the frog without it noticing and talk it back into the water every time it thinks about leaving. That’s why they first downplayed the duration, and now that that has no longer works, are talking about making plans to do something in the future. Narrative control impacts behavior.
This is their dream scenario, talking about it is as effective as raising rates. Ever seen Merv King’s quotes on Maradona?
The flaw in your theory is that high inflation will make debt payments sky rocket.
I don’t believe Central banks are all alike. Historically, the Fed didn’t give a crap about government debt. If the oligarch member-owners in the Fed cartel wanted the government debt to balloon to increase their profits, they would work to balloon the government debt. If some form of deflation would increase profits, they worked for that.
The Fed has never been an institution that put the United States government economy as top priority. Except for preventing its collapse to so they can keep on bleeding it. Sort of like keeping a brain-dead body alive to prevent the estate from going into probate and losing all the gravy-train management fees.
The saddest part is that while they want inflation, they’re wrong.
This is going to be like the ancient Greek tragedy, where to punish hubris the gods give Midas everything he wants, and he finds out only too late how wrong he was. (Plenty of other examples, but Midas is apropos…)
Germany can’t just raise rates, this is the design flaw in the Euro.
All economies have to move at the same speed, but now inflation is hitting Germany and a downturn is hitting the PIGS they need two interest rates.
That or they could all do as Keynes said : euthenize the rentier.
But no politicians want to really *solve* the problem.
Politicians can’t ‘solve’ the problem.
You can’t make a pig fly without major reconstructive surgery.
I was on holiday, in about 1994, in what is now Croatia, but back then was Yugoslavia. One day I went into a bar and brought a beer, in cash, Yugoslavia had almost no credit card facilities at this time, the Barman held his hand out for my money, after I had paid, naturally I was reluctant to hand over more cash after a completed transaction, I didn’t speak Croat and he had very limited English.
After a while a German acted as translator and explained he doesn’t want to keep it, so still reluctantly I handed over the cash in my hand, the barman took a pen and crossed off the last three noughts of the denomination of each note, my 10,000 Dinar note, about the price of a pint of beer, about 80p GBP, became a 10 Dinar note.
I was obviously pretty furious but the German explained that the currency had revalued overnight, and since it was impractical to print enough cash for the whole economy overnight, the government had instructed every one to cross three noughts of the end of each denomination of note, (dinar), metal coins,change, were just to be thrown away.
When I left the country, which was a beautiful country with really nice people, I found the airport with literally hundreds of dustbins full of money, anything less than 50 Dinar notes, (previously 50,000), could not be changed back home as the note was only worth 20p GBP, and the currency exchanges didn’t want to be filled with worthless Dinar devaluing by the hour.
As I left I gave the maid who had looked after me whilst staying at the hotel a £5 Stirling note, she fell onto her knees and thanked me, I was astounded and somewhat embarrassed. When I relayed this incident to someone else they explained that I had given her 6 months of salary as a tip.
This could possibly be in your future, I have seen and experienced inflation first hand, it had no effect on me personally, but that may not always be the case, subsequently I have always kept a small amount of insurance in the form of gold.
KFC had 10 piece chicken for $9.99. It recently went to 9 piece for $9.99 and today it’s now 9 piece for $11.99. This is Portland Oregon.
$1 increased to $1.33. 33% increase where I come from. My Netflix went from $14 a month to $18 a month after 4 months. I have to have it for a holiday rental I have on my property. 28.57% increase. Hardly what the official liars tell us.
There are about 90 million vacant housing units in China all brand new and still waiting for occupancy, in a country that is now undergoing depopulation.
There are about 30 million residential units unused in the USA. Many of these properties do not earn incomes and are mortgaged to access low interest capital that is used for other investments.
These real estate assets continue to significantly appreciate in value, albeit vacantly. If these assets are seriously devalued, there might be a top down revolution, this time to be led by the upper classes of the world system (which explains the massive injections of money printing).
The built-in-inflation of the globalist system discourages savings and keeps the herd running on a conveyor belt of real estate investment and securities.
It’s as if the system is running towards the edge of a cliff. What the ongoing depression will bring to inflated asset prices is something that remains to be seen.
WR – Thank you the info. This is mind numbing.
In your opinion, how much interest rates needs to be to tackle this type of inflation? And how long do you think the fed is might take to raise the interest rate that much?
Sorry forgot to add I was asking in regards to US inflation.
They need to be high enough to jar people and businesses out of their inflationary mindset. This won’t be easy to do.
Exactly. If people start to pile into housing to protect savings and see that housing is going up by 8% per anum, they will continue to pile in as long as rates stay below 5%, maybe even 6%.
The effect on human behaviour for rates is not symmetric, when you go down 1% from 2% it’s a 50% cut, but going back up it’s 100% rise, and in the meantime inflation also behaves very differently on cutting vs raising.
That said, all of these games will achieve nothing as whether rates are high or low, rentier activity is encouraged and is a zero sum game, eroding real growth.
If the USA actually discouraged rentier activity and kept the rest of their dynamic model it would soar ahead of other countries.
Forgive me for trying to answer a question related to the article. Is the EU Bank Lending Rate the equivalent to our Federal fund rate of 0.25%?
If so it stands at 1.75 percent in October 2021. That rate is too way beneath the inflation numbers. Would we expect that the EU would be pushing this rate up in the near future?
If the ECB raises rates it applies across every country in the Euro.
That is the fatal flaw at the heart of the Euro.
The world’s central bankers are looking the fool at this point. They finally got clowned, big time, and they did it to themselves. Their own words and actions have now come back to haunt them.
All eyes are now on the FED and Powell this Wednesday. I’d argue that this is the biggest policy decision they’ve had in over 50 years. They messed up big time and they know it. With their “transitory” nonsense, it’s like they were hoping they could just jawbone inflation away. That’s not how it works.
In order to get a handle on inflation, the FED needs to be ahead of the curve. Instead, they are ridiculously far behind. First and foremost, the FED needs to announce that they are ending QE immediately. Not in March, but immediately. Then, they need to announce rate hikes starting next month, and not chintzy 25 basis point hikes. They need to start off with 100 basis points minimum, and signal repeated hikes to get to a rate of at least 5% by the end of next year, and that’s still not enough.
Of course, I don’t expect them to do this. I expect them to announce that they are going to continue pumping QE into March, adding another $180 BILLION, which is absurdly irresponsible and grotesquely inappropriate. Then I expect them to announce that a rate hike of 25 basis points might happen sometime after their taper is over with. That’s like an ant pissing on a forest fire. I mean, WOW, Powell, how aggressive.
Agree. The Fed must admit they goofed, and start taking back at least half of the $4 Trillion they injected…..by rolling off their balance sheet holdings.
Debt creation must have a REAL cost, and the politicians have to come to grips with this. What has happened to the currency and the national debt is akin to “smash and grab” on the streets. Take take take.
They’ll use Omcon to delay.
UK is already hinting at it for our big reveal on Thurs.
Legarde just a puppet.
And the new central banker ilk are just one trick ponies….
cut cut cut…….rates..
buy buy buy government debt.
History repeats, and with each repetition the cost of the error increases.
This is my first time to post on this website, so first of all I’d like to thank Mr. Richter for all the hard work and to most of you in comment section for knowledgeable and civilized comments.
Regarding the article, my thoughts are that while USA elites have some plan for the inflation (most of it is keeping USA as the financial ruler of the world through WS oligarchy regardless of price to be paid by citizens), EU elites are completely blank on what are the steps to be taken. EU is IMO a group of second grade powers, which are in rapid decline, ECB also does not print world reserve currency and is completely unprotected from debasement – the fall is imminent if they don’t rise rates. As Ivanislav stated EU was badly managed through immigration crisis and this is causing great deal of division inside and among member countries. Rapid decline in living standards might be just the thing to tip over the balance and we might see more “brexits” in future.
Also, I am not a bot :-), just an EU citizen worried for my kids’ future.
1) The 6.8% inflation is a one timer spike to ignore. The frog jumped.
2) But COLA is cumulative. What u get in Jan 2022 will stay until Dec 2022.
3) Economist live in their own fantasy dreams, but they don’t run the world.
4) It’s all about power. The gov need a painful correction in order to soften
“transitory” Joe Manchin and senator Cinema, to carve domination.
5) Once they save us with their $6T plan and domination, they can tax EV, scalp $18T in interest interest bearing saving accounts an non interesest
bank accounts, to saved the banks.
Prices going up.
Passed on to consumer.
Consumer has salary rise?
Without the salary rise they spend less on other discretionary stuff.
That means less jobs, and that means society in aggregate has less money to buy stuff, and?
When the covid19 thing is over and supply and demand balances out, and markets compete, why should pricing stay so high?
Where will all that money go? Will everyone get big fat pay rises?
Or will markets compete to lower prices and win demand back?
I still have no idea why inflation driven by temporary supply/demand imbalance will be persistent.
And not just indicative of cycle end excess, combined nicely with a covid19 policy induced supply/demand disruption?
If all the disposable income of median families disappears paying for energy, food and housing only, then what happens to the millions of jobs and salaries in everything else?
I just can’t fathom how this type of inflation will generate sustainable economic inflation and drag salaries up to match… it’s more likely to crash the economy.
And that’s before the Fed/CBs try ‘fight’ the demand by raising interest rates.
“I still have no idea why inflation driven by temporary supply/demand imbalance will be persistent.”
OK, I’ll help you out. And I’ll repeat what I’ve been pointing out all year: The whole inflationary mindset has changed, and businesses are paying higher prices, and they’re paying higher wages, and they’re passing those higher costs plus some on to consumers, and consumers are paying those higher prices without resistance, and the cycle continues.
There is no longer any price resistance. After 40 years, it has fallen apart. The dam has broken.
Inflation has now moved into services — nothing to do with supply chains and bottlenecks.
I don’t believe ‘mindset’ is a primary creator of anything but temporary moves. Minds change in about a New York second. Clip a couple thousand points off the stock markets (happens about every five years) then end up with deflation for another year or so. And guess what? A nothing burger.
This deflation fearmongering BS is getting really old. There were only a few quarters of deflation in my ENTIRE LIFE, and I’m not a young Turk anymore. The rest of the time we had either inflation or raging inflation.
The fairest monetary policy is slight inflation followed by slight deflation followed by slight inflation etc. etc. namely true price stability.
Volcker spoke of this strange obsession with deflation. He said as soon as he finally wrestled inflation to the ground in the early 80s, the Keynesians started running editorials in newspapers warning that he was risking a plunge into deflation. While inflation was still running about 4%! Economists – and not just Keynesians though they’re usually the most vocal – have been warning about deflation hiding around every corner and behind every tree since forever. They love to point to the 1930s. They NEVER mention the roaring 20s, which saw consumed prices fall by over 10% over the decade while the economy boomed. Easier to pretend that never happened.
It’d be great to see salary data to correlate with this inflation then.
And if it is correlating, fairly across society, what is the issue?
Debt devaluing, stock markets raging to pay nice pensions, cheap debt.
The only reason this is a problem is if people can’t afford stuff… and that is deflationary isn’t it?
Today in the news, there was a report that the spread of the Greek 10 year bond has climbed to 171 bp.
In summer 2021 it was less than 100, a “remarkable” feat for a country with a debt/GDP higher than 200%.
Above data by Wolf adds to the possibility that an increase in ECB interest rates is already being priced in.
Well, at least this time there probably won’t be any National Socialist types coming to power, just international socialists (communists). Merkel, former member of the East German Freie Deutsche Jugend, the East German Communist equivalent of the Soviet Young Pioneers is out and Olaf Scholz in.
“The specter of extremists returning to power in Germany took a step closer on Sunday evening during the final debate among candidates to succeed Chancellor Angela Merkel, with the left-wing Social Democratic Party of Germany candidate refusing to rule out a coalition government with the Marxist Left Party.”
Hardship and growing income disparity lead to stupid choices made by the general public.
Angela Merkel was born in the GDR where the state controlled all group associations. Slandering her for belonging to the GDR equivalent of the Girl Guides is silly.
Wow. US real inflation looks tame by comparison to Germany. We (US) are in a good position to watch the next moves of Germany, Brazil and others with higher inflation.
Interesting bit over on ZH Dec 13 : The Mainstream is sugarcoating inflation
Quoting Schiff: The inflation today is as bad as the 70’s that made Volcker increase Fed rate to 20 %. The only reason it doesn’t seem as bad in MSM is because of big changes in the way CPI is calculated. Schiff says if we use the 70’s formula inflation today is 15%.
In other bits on ZH there are the usual warnings against tightened too fast because these inflated stock prices are a huge part of people’s wealth and if we take that away there could be ‘horror of horrors’, a RECESSION !
Recessions like booms, are part of the natural economic cycle. There have been short ones. If rates had been allowed to rise to something like normal 5 years ago, a lot of the crazy excess could have been avoided with a short recession. Today Apple might only be worth 2 trillion not 3 trillion. Same with the other computer froth stocks: MS, FB, G etc.
But they weren’t and unless JP tells us in his memoirs, we’ll never know what was the influence of the unprecedented rants of a semi- literate President as JP refused to ADD stimulus: ‘Worse than China!’ he said of JP. Incidentally, this would seem at odds with the oath to respect the Fed’s independence.
Anyway, rates weren’t hiked and markets in everything exploded, creating a wealth effect and a feedback loop as a lot of paper wealth was fed back into markets, creating more wealth effect.
There is no painless way to erase a lot of this paper wealth. A recession is unavoidable. But it doesn’t have to cause another GFC, as this scare bit on ZH threatens. Just don’t let another Lehman happen. Fire the execs, maybe a bond haircut but don’t halt like an airline stranding passengers.
Incredibly, the Fed was unaware that in the UK when a bank files BK it has to stop biz that second. So hundreds of millions were halted in mid- air. A bank that had just wired ten million US to buy UK pounds was out 10 million and was now an unsecured creditor. That’s when banks stopped lending to anyone.
“There is no painless way to erase a lot of this paper wealth. A recession is unavoidable. But it doesn’t have to cause another GFC, as this scare bit on ZH threatens. Just don’t let another Lehman happen. Fire the execs, maybe a bond haircut but don’t halt like an airline stranding passengers.”
Haha, riiiiiight. That’s not how it works, bud. You blow the biggest bubble in the history of the world and you’re going to get the biggest pop in the history of the world. You sound like those real estate shills back in the day who were trying to massage the term bubble into things like “souffle,” and that prices would maybe soften but then remain at a “permanently high plateau.” It’s all wishful thinking. A crash is baked into the cake.