This morning has brought news which will bring a smile of satisfaction to the central bankers at the ECB (European Central Bank). From the German statistics office.
The harmonised index of consumer prices (HICP) for Germany, which is calculated for European purposes, rose by 2.2% in September 2018 on September 2017. Compared with August 2018, the HICP increased by 0.4% in September 2018.
All the ECB’s efforts have got German inflation pretty much to where they want it to be. It has been quite an effort as the official deposit rate is still -0.4% and there are still around US $1.5 trillion of bonds with a negative yield in the Euro area. But we are near to the target and the extra 0.2% can be responded to by pointing out that the amount of monthly QE is on its way to zero.
The ordinary German consumer and worker may not be quite so keen as items downgraded to non-core by central bankers are important to them.
Energy prices rose 7.7% in September 2018 on September 2017. The rate of energy price increase thus increased again (August 2018: +6.9%). ………Food prices rose above average (+2.8%) from September 2017 to September 2018. The year-on-year price increase thus accelerated slightly in September 2018 ( August 2018: +2.5%). ( From the German CPI detail)
Indeed they may be wondering how to translate ” I cannot eat an I-Pad” into German?
Consumers benefited, among other things, of lower prices of telephones (-5.3%) and consumer electronics (-4.6%).
Those who think that rents are related to real wage growth will get a little food for thought from this.
A major factor contributing to the increase in service prices was the development of net rents exclusive of heating expenses (+1.5%), as households spend a large part of their consumption expenditure on this item.
Travelling through the detail shows us that whilst the aggregate looks good in fact the inflation numbers have only moved to around the target level because of energy costs. All that monetary easing had little effect on consumer inflation but of course saw large wealth gains for those holding assets and subsidised government borrowing costs.
This has been an area of satisfaction for the central banker play book as we note that in the first two quarters of 2018 house prices rose at an annual rate of 5.5% and 4.7%. The index set at 100 in 2015 has reached 115.1. So a win double for the establishment as it can claim wealth effects of between 4% and 5% whilst as we have observed above tell the ordinary person that via the use of fantasy imputed rents inflation in this area is only 1.5%.
Although as DW pointed out in May last year not even every central banker is a believer.
Bundesbank warns of German real estate bubble
Why might this be?
Due to mortgage interest rates of well below two percent, Germany has been experiencing a rapid transition towards home ownership in recent years, now creating fears familiar in many other property markets. Housing prices, which were relatively cheap compared with other European countries in the past, have risen sharply.
Real estate prices in cities like Berlin, Hamburg, Munich and Frankfurt have increased by more than 60 percent since 2010, according to recent estimates by the German central bank, the Bundesbank.
We look from time to time for examples of mortgage rates and DW provided us with one.
Commerzbank, the country’s second-largest lender, offers a mortgage with an ultra-cheap fixed rate of just 0.94 percent for a 10-year loan.
It is hard to over emphasise how extraordinary that is! Also should it carry on it may lead to quite a change in the structure of German life.
For many well-off Germans with permanent jobs renting no longer makes sense.
Since then house prices have continued to rise.
As recently as the middle of June the German Bundesbank was very upbeat.
Germany’s economic boom will continue. The already high level of capacity utilisation in the economy will increase up until 2020,
Although hang on.
although growth is unlikely to be quite as strong as in 2017. Growth in exports and business investment will be less strong. In addition, the rising shortage of skilled workers will increasingly dampen employment growth.
Indeed as we look at the specifics frankly it does not look much of a boom to me.
Against this backdrop, the Bundesbank‘s economists expect calendar-adjusted economic growth of 2.0% this year and 1.9% next year. In 2020, real gross domestic product (GDP) could increase by 1.6% in calendar-adjusted terms.
If we apply the rule that has been suggested in the comments on here that official economic growth needs to be 2% per annum for people to feel it then Germany may even be slipping backwards. This week as MarketWatch points out below has seen others fall in line with this growth but perhaps not as we know it scenario.
Germany’s economic growth is now expected to come in at 1.8% this year, rather than the 2.3% forecast previously, the government said Thursday in its autumn report. Next year’s expansion is now seen at 1.8% instead of 2.1%……..Earlier this week, the International Monetary Fund cut its growth forecasts for Germany to 1.9% for both this year and the next, decreases of 0.3 and 0.2 percentage points respectively.
We can bring this up to date by noting the industrial production figures released today by Eurostat. These show a flatlining in August meaning that the annual figure had declined by 0.5%.
After a good spell for the German economy ( which expanded by 2.2% in 2017) we are starting to wonder if that was as good as it gets? Regular readers will be aware of the way that money supply growth has been fading in the Euro area over the past year or so, and thus will not be surprised to see official forecasts of a boom if not fading to dust being more sanguine. As the money supply changes have as a major factor the fading of ECB QE we return to the theme of Euro area economies being monetary junkies which perhaps Mario Draghi has confirmed this morning.
*DRAGHI: SIGNIFICANT MONETARY POLICY STIMULUS IS STILL NEEDED
After all we are in official parlance still in a broad-based expansion. Moving back to Germany it is starting a little bit to feel like what happened to high streets when they lost individuality and became clones. Some economic growth accompanied by asset price rises whilst official inflation rises by less than you might have thought.Or the equivalent of finding Starbucks and various estate agents on every high street,or putting it another way look at this from the Bundesbank.
German economic growth will therefore consistently outstrip potential output growth,
Yes even the sub 2% economic growth is apparently too much just like most of us in Europe. One can go too far of course as there are the surpluses to consider in trade and government finances. The former was supposed to be something that was going to be dealt with post credit crunch but by now you know the familiar and some might think never-ending story. Sometimes life feels a bit like this experience for a City-AM journalist.
@Uber. How am I meant to log into my account to report my lost phone when the login process requires sending a text to my phone?
As has been pointed out the concept of Catch-22 has reached Milennials. Let me leave you with something for the weekend which believe it or not is to promote Frankfurt.