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ECB Split over Rate Outlook |
HenryTo
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Joined: 06 Aug 2004
Posts: 11734
Location: Los Angeles, California
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 Posted: Mon Jun 04, 2007 8:15 pm Post subject: ECB Split over Rate Outlook |
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The issue is over money supply, as the latest 12-month growth rate came in at 10.4% - the highest level in 24 years:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0tlsNYCU7ko&refer=home
| Quote: | The French and Italian central banks are questioning how inflationary all that cash has been, given that prices haven't risen much more than the ECB's limit of ``close to but below'' 2 percent. They are coming into conflict with those who believe the expansion in money supply must be checked with even higher rates before it spurs inflation.
The public discussion began in February when a Bank of France study concluded that ``the existence of a strong, stable and predictable relation between money and prices in the euro area cannot be taken for granted.'' In April, Noyer said the tripling in hedge-fund assets over the past decade and emergence of derivatives destabilized money data and posed a ``clear challenge'' to the bank's analysis of it.
That point was reinforced by a May report from the Bank of Italy stressing that money-supply growth may pose ``smaller upside risks to price stability'' than thought. It argued that liquidity has been swelled by holdings of assets at financial- services companies such as pension funds. That fans inflation less than money growth, which feeds into household spending and consumer prices, the report said. |
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ECB Split over Rate Outlook Replies |
rffrydr
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Joined: 30 Oct 2005
Posts: 16932
Location: Sunny California
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| Posted: Mon Jun 04, 2007 8:52 pm Post subject: |
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Classic tension between french embrace of extra-monetary practices and control of the state; and German strict obeisance to the cold science of money. Although it's a french study I give the nod to tighter policy.
The ECB head is french, the first time the French were in charge of anything to do with money in europe since before WWI... no before...Napolean. Tighter policy carries a token of pride within Europe and independence of the US. And never have the conseqences been so inconsequential--less than 15% of European trade is with US.
China exported inflation will finally bring around the economists. All of this will happen without reference to inflation mind you 
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