Euro zone inflation soars to a record 10%, piling pressure on the ECB | Hacker News Reader

Euro zone inflation soars to a record 10%, piling pressure on the ECB

cnbc.com

42 pointsmfiguiere78 comments

lol

Inflation is only 10% if you try to lie about it by averaging in new TVs. When your electricity bill doubles, when your gas bill triples, when food rises by 30% you are not going to be buying a new TV.

lmao

You're describing an "income effect." There's also a "substitution effect." The fundamental idea is that people will change their purchases in response to changing prices. If there's a sale on bread, then you might pick up an extra loaf (substitution effect). But if you were a peasant mainly eating bread, then you might actually purchase less bread and more cheese (income effect).

Inflation statistics should correspond to what people buy, like an average across households. That's essentially what the government statistical agencies attempt to do using some combination of (1) actual market transactions, and (2) household surveys. Inflation stats are definitely imperfect--but not so obviously flawed as you suggest (weighting TV prices the same as energy prices).

Since inflation numbers are an average across households, inflation will certainly differ across households. (For some it will be higher, and for others it will be lower.) It's particularly concerning when food, energy, and housing inflation are higher than other categories (as they are today). Poorer households tend to spend more money on those staple goods. In that case, inflation will be higher for those households already less well off.

For anyone interested: "The Government Isn't Cooking the Books on Inflation"

https://www.discoursemagazine.com/economics/2021/07/16/the-g...

>You're describing an "income effect." There's also a "substitution effect." The fundamental idea is that people will change their purchases in response to changing prices. If there's a sale on bread, then you might pick up an extra loaf (substitution effect). But if you were a peasant mainly eating bread, then you might actually purchase less bread and more cheese (income effect).

Maybe you'll substitute cheese for bread, but you're not going to substitute a TV and some extra pairs of jeans for your electricity and gas.

The article specifically addresses that; it's ~5% excluding those two bits.

> However, core inflation, which excludes food and energy, climbed 4.8% on the year, up from 4.3% in August, and economists broadly expect the situation to get worse before it gets better.

It's waaaaay more than 10% for the average joe though, the person you replied to is right. Day to day purchase are closer to +30% than 10% but if you throw in useless gadgets no one buy in a crisis it goes down a lot.

Take Germany for example: https://www.destatis.de/EN/Themes/Economy/Prices/Consumer-Pr...

That list is a specific set of - again - mostly food and energy items.

Yes, the things that hurt the 50% below the median the worst. I can stomach my utilities bill going from 200 to 800 eur, I won't like it but we'll manage.

The other half of the country will revolt, probably.

The 10% includes food and energy items, but also things that people won't be spending money on when the price of food an energy goes up so it underestimates the impact of an increase in the price of food and energy.

I'm not in the EU, but this is what our family has done. Our food bill alone has gone from around 30% of our takehome pay to around 40%, and we just don't have the income to absorb that increase.

So the useless crap, the things that make inflation look not so bad, gets cut out.

I'm in the US and this is what I hear from the people I know.

Most of those people don't carefully track their expenses so they just know that they have less left over after paying for the necessities. A couple of them do track expenses carefully and when I was talking to them a few months ago they said that their personal inflation rates were at least 20% over the previous 12 months. I just checked heating fuel costs and they're up 36% from last year, which is less than I expected given what other people have said about their costs but it's still significant. It's definitely going to be a hard winter for a lot of people I know.

Well guess what people live on ? Food and energy items

Which, again, the 10% number includes. It's 5% with them excluded.

Yes but it's artificially lowered and doesn't reflect what people are going through

10% doesn't sound bad, but irl you're spending 30%+ while consuming less

Yes, but that’s the OPs point. No one cares about the price of TVs. The metric (core inflation and CPI) isn’t measuring peoples experience accurately.

When things like used cars were driving numbers people absolutely wanted to include those in the messaging. I saw zero inflation-bugs complaining that really we should be using food and energy only when those weren't the dominant forces.

> I saw zero inflation-bugs complaining that really we should be using food and energy only when those weren't the dominant forces.

Because it is never that clear cut.

If food goes up by 2%, gas/electricity by 3% and TV/video games/cars by 2.5% you can say inflation is ~3%

If food goes up by 30%, gas/electricity by 100% and TV/video games/cars by 2.5% saying inflation is 10% by using magic maths is bullshit

But what if food goes up by 2% and cars/lumber go up by 50%? In that case will you still exclude the cars and lumber?

Let's talk about that when it happens, I feel like it's not a very realistic scenario

Literally last fall.

Yes and yes. Lumber will come back around into people's expenses for shelter. Cars are harder to justify leaving out.

But these people are largely hired and paid for by the government. The government, who has to pay extra if inflation goes up (esp. in Europe). Obviously they have a preference for lower inflation.

(and frankly, to a small extent their argument is valid. If everyone switches from Coca-Cola to Pepsi, even if they do so because it's cheaper, then Coca-Cola has no place anymore in an inflation index. Prices are meant to affect buying behaviour and products must be allowed to replace each other)

> The metric (core inflation and CPI) isn’t measuring peoples experience accurately.

Yes; that's why the number in the headline is 10%, not the 5% core number.

What happens when you get high inflation and the central bank can't stop money printing because it would cause your sovereign to default, like we saw this week in the UK?

Is there any evidence that this inflation is due to "money printing"?

The reason I mention this is that the Euro would experience inflation even if the central bank turned to a policy "money destroying" because the USD is absolutely crushing every currency. Even bastions of stability like the CHF have lost 10% of their value against the dollar. So any produces or services that touch an American company in any capacity are going to see inflation.

The subject is far more complex than money printing...If there was "one weird trick to stop inflation," then we'd never have inflation.

Excessive money printing doesn't always cause inflation, but pretty much every instance of high inflation coincided with excessive money printing.

The story just makes sense. Low interest rates means banks have more money to lend, everyone else gets more money (unfinanced stimulus payments) which means they have more money to spend on this driving prices up.

Its hard to tease out. It's like lung cancer. Before it was directly associated with smoking, the evidence was overwhelming when you consider that nearly every case of lung cancer happened in people who were heavy smokers. Add a mechanism to how inhaling smoke into your lungs can increase the probability of cancer and you have pretty compelling evidence that smoking is the culprit. Others with a stake will try to confuse you (cigarette companies, central banks, etc), but its pretty obvious.

Causality or correlation? Every central bank at times has to deal with inflation and deflation, increasing or reducing the money supply. Inflation today has a lot of different factors than inflation in various times in the past - huge increases in energy costs (Russian invasion leads to so much more, gas shortages in europe which drives everything else up they make), fertilizer made in good part from petroleum related things gets more exp, food gets more exp, Ukraine doesn't export as much food so there's a shortage of that. Add on covid supply squeeze. You get huge inflationary pressure WITHOUT ANY MONEY SUPPLY CHANGES. I'm kind of tired of people wasting everyone's time arguing about whether the us causes inflation because we aren't on a gold supply anymore, or crypto is the savior or source of our problems, on increases in the money supply. We were stimulating the economy in the us (and in europe too I guess).

imho, the US fed will fail to knock down inflation much because they can't control these external factors, energy prices increased, supply decreased (in part bc Euro stopped buying Russian petro products), food shortage. These are outside their control. I keep reading articles the last few days saying we are close to a deflationary spiral on prices, going completely the other way. Who knows who is right. But I am right that there are these external factors causing inflation.

Yeah, that’s what I don’t get… the inflation we’re seeing is clearly a result of the energy spike from Russia’s invasion plus the end of Covid (demand came surging back for things like air travel and diminished supply takes a while to catch up). It seems pretty clear low interest rates and printing money which has been going on since 2008 probably isn’t the cause.

Inflation was high before the exchange rate started to dip.

I’ve only researched the U.S., but there is a lot of evidence that free money greatly increased demand and lead to inflation. Given that a lot of the world invests money in the U.S., the Fed’s loose money policy likely has knock on effects throughout the world. And then you add on the loose monetary policy of the other central banks…

Is there any evidence that increasing the money supply causes inflation?

Yes, basic logic. Central banks purchasing assets like index funds, bonds, etc. will naturally cause prices to rise.

I’m not entirely sure how you can steel man an argument that printing trillions of dollars will not lead to higher inflation but I’m happy to hear it.

Sorry, this simple argument fails because central banks have been doing this for 15 years, and 13 of those years they were complaining about a lack of inflation. Ergo, the current inflationary environment is not the result of central bank activities.

A bunch of things have changed in the past few years, which could trigger inflation. A massive pandemic that continues to kill millions every month, lock downs in China that curb the ability of the world's largest producer of goods to produce goods, a war in Europe which has caused a massive energy crisis.

So where I'm sitting, basic logic exculpates central banks.

If the pandemic were truly killing millions of people every month then by this point we'd've seen a dip in the global population.

Maybe not millions a month but excess deaths are a real thing. That's from loss of treatments bc of the covid impact on the entire worldwide health system, as well as people getting sick or weakened from covid, and then people dying from covid directly. Last cal year: about 5 mil covid deaths, about 15 million more people died than expected (aka excess deaths) - so 10 million more on top of covid https://www.who.int/data/stories/global-excess-deaths-associ....

This other paper has more breakdown. Search for "estimated cumulative excess deaths", 15-25 million through Sept 2022. It's ballpark but it's not insignificant. https://ourworldindata.org/excess-mortality-covid

Agree with it being a combination of many factors on both supply and demand side, but I feel we can't exclude the unprecedented and massive amounts of financial intervention.

I'm not a wonk here but have heard the argument that QE from 2012-2019 was partially to keep deflation at bay. Meaning, QE and ZIRP _did_ increase inflation, even if the result was reaching the target 2%.

The scale of increasing money supply and QE also was much larger this time. Before 2009 Fed balance sheet was under $1T. Actions taken during and around the GFC increased it to $2.1T. During the last couple years they grew it by $5T, and it maxed out just under $9T.

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

Don't think that's true. Look here at this graph of the money supply. There is a visible change in the money supply after covid hits and stimulus starts. It has not been going on like that for 15 years.

https://fred.stlouisfed.org/series/M1SL

> and 13 of those years they were complaining about a lack of inflation

I think this was mistaken. There has been huge inflation over those 13 years, it's just been in specific asset classes like houses rather than general goods.

Bingo. It’s completely idiotic to think there was no inflation. Nobody complained when the stock market doubled. Some people complained when the house market doubled. Everybody complains when energy prices double.

Only dumb peasants that weren't long on leveraged energy futures complain when energy prices double. Check-mate, poors.

All the things matter. If there was no printing, prices would still rise due to pandemic issues related to less things being built and war issues related to less energy supply.

Ie supply is down right now

> ... the Euro would experience inflation even if the central bank turned to a policy "money destroying" because the USD is absolutely crushing every currency.

If the European central bank started reducing the supply of Euros, the Euro would increase in value relative to the USD. The rise in the USD isn't an earthquake or weather phenomenon independent of everything else.

Taxation, Debt, and Inflation are the primary means by which government extracts from the populace. No one wanted to tell the populace they were going to tax the fuck out of them to prop up businesses and the unemployed during lockdowns, so instead they just "tax" by allowing rampant inflation and then blame it on central bank, Russia, whatever.

People get poorer on a real basis and the debt gets diluted to a reasonable level. After enough inflation things can stabilize again.

People are not affected equally. Inflation benefits debtors, punishes creditors. It’s hardly fair and arguably a moral hazard. People that lived frugally and saved their income essentially have subsidized risk takers that took on debt.

To play devil’s advocate, perhaps risk takers should be rewarded?

Actually higher is inflation the lover is absolute value of sovereign debt

This could get really bad. I mean Zimbabwe or Weimar bad. If energy shortages cause a crash in production there will be no central bank intervention capable of bringing down inflation because the problem will be on the supply side.

Why can't the government step in and outright order suppliers to produce, and if they cannot or won't, nationalise? Yes, doing this is an emergency would be extreme, but a Zimbabwe or Weimar is far too catastrophic to worry about the long term effects of nationalising energy production.

Because there's not enough gas to produce stuff at prices, at level where anyone is willing to pay them for the products?

Right now is probably a very good time to take on as much debt for real things that you can.

As long as your income scales more than the eventual debt rate increase down the line.

This why I don't understand people who argue we're spending too much on military aid to Ukraine. The sooner Russia loses the sooner Europe can go back to buying energy from them. The paltry few billion we've sent so far is nothing compared to the costs of long-term sanction enforcement. We should be flooding Ukraine with a deluge of money and advanced weapons and vehicles on the financial merits alone.

> who argue we're spending too much on military aid to Ukraine. The sooner Russia loses the sooner Europe can go back to buying energy from them.

The EU already said Russia is game over for commerce in the near future, even if they went back home today we wouldn't trade with them before years

Nothing guarantees sending more weapons will make the conflict shorter, it's called escalation, and if Russia plays the same game it came be a very very long game. Everyone knows when a war starts, nobody knows how long it'll last, we might very well be marching towards ww3 and cheering about it

> The EU already said Russia is game over for commerce in the near future, even if they went back home today we wouldn't trade with them before years

Why? A few cold days, a few europeans with pitchforks, a few politicans removed, and trade restarts.

That's why the nordstream was destroyed... the only thing standing between freezing germans and cheap gas is (and no "was") a few politicians, and politicians can be replaced one way or another.

Glad nord stream was destroyed. Germany has subsidised its industry with blood oil far too long despite warnings it should do otherwise. Lets see how well it performs now that it has to play by the same rules as everyone else. I feel sorry for the germans that will suffer due to their corrupt politicians, they truly dont deserve that.

Meanwhile: https://www.dw.com/en/german-government-approves-arms-export...

Then it would be the end of the EU, if all we stand for is money and cheap gas let's nuke it all already

I mean its not new, is it? Supporting the occupation in Palestine, turning a blind eye to what Russia did and is doing in Syria, Afghanistan, and many other things.

Its nothing new for the EU to ignore human tragedies for economic benefit, and when the push comes to shove, citizens prioritize their country over others, just like how they should.

Not just turning a blind eye, but actually helping the americans in wars in syria, afghanistan, libya etc.

Exactly.

That's the reason why the entire east is calling the west hypocrites, well because they are.

Unless the Russians are bluffing about using their nukes, they literally can’t lose. They can only fail to win.

Nuclear war will also cause hyperinflation, although at that point it will probably be academic.

> Unless the Russians are bluffing about using their nukes...

Of course they're bluffing. They've made these sorts of threats for decades; "if you let Finland join NATO we'll be super mad!" Giving in to nuclear blackmail just gives the bully the go-ahead to do the same thing again.

This isn’t a playground we’re talking about.

And incidentally it was nuclear blackmail by the USA that ended the Cuban Missile Crisis. It has precedent and a successful track record. And Ukraine is a lot closer to Russia than Cuba is to the USA.

Ask yourself what’s worse for Putin: using nukes and declaring victory, or an ignominious defeat and spending the rest of his life in whatever circumstances a deposed Russian leader is likely to get. Are you really so certain he won’t send up the balloon?

Grownups learn these dynamics on the playground.

> And incidentally it was nuclear blackmail by the USA that ended the Cuban Missile Crisis.

The USA wasn't incrementally annexing Russian territory at the time.

> Are you really so certain he won’t send up the balloon?

Yes. Someone throws him out a window if that order goes out.

For Putin's regime, failing to win is basically losing.

What’s win though? If his mobilization manages to keep Ukraine forces at bay and he goes through with joining Luhansk, Donetsk, Kherson and Zaporozhia to Russia - is that the win scenario?

He can probably pull that together pretty easily by dumping 1-2 million russians in it.

If he stalls things for 2-3 years with the new borders, the West is likely to give up and just have them be another Crimea. NATO certainly won’t send troops in.

It's highly suspect if he can mobilise 1-2 millions. The latest mobilisation sought 300k and is already causing civil unrest and hundreds of thousands of people fleeing Russia.

Furthermore they can barely equip the current conscripts so unless they are going to use T34s I doubt we will see millions mobilised.

I'm pretty sure Europe is cut off from Russian energy for years at this point because so much infrastructure has been destroyed (including Nord Stream 1), and if the conflict lasts into the winter, Russian's production capability will be set back by decades as they don't have the means to store the volumes they need to produce in order to keep their equipment from seizing in the cold.

Nordstream 1 was about 35% of supply. Russia continues to supply gas via other pipelines, including the ones through Ukraine no one's dumb enough to attack thus far (for now: https://www.politico.eu/article/russian-gas-across-ukraine-j...).

https://upload.wikimedia.org/wikipedia/commons/d/d7/Major_ru...

The Russians can burn gas if their storage fills up.

Russia could produce and burn the stuff to keep the well heads from freezing. Think Saddam Hussein in 1991, but not quite as bad because the Russians wouldn't set the well-head equipment on fire, but burn it a bit away from the well, and in a way they could easily put out.

You think they wouldn't?

They just burn it off if they cannot sell it, I guess

How exactly is the ECB supposed to provide cheap energy via interest rates? And what exactly is the thinking here? Energy bills have more than trebled and people are going to be thankful to central banks for paying 3x more for their mortgage? The best thing central banks can do is sit on their hands for now

This is a low cost to pay if someday we can live in a world where there are American/EU chain stores on every corner of Kyiv.

Why? Why should the average EU citizen care what kind of stores are in Ukraine?

I very much do not want to sacrifice even the tiniest bit of quality of life because of whatever happens in Ukraine.

I still do not understand what is so special about that country compared to all the other countries in which terrible things are happening.

I think the OP was being sarcastic. They're saying this is more about EU/USA business interests and using Ukraine as a proxy to fight Russia than any type of actual humanitarian aid.

- It has shared borders with EU countries.

- Ex-USSR countries in the EU understandably feel a little touchy about Russia claiming a natural right to invade an ex-USSR country.

- In many countries where horrible things are happening, the horrible things are internal and the result of civil war or a corrupt government. In many cases it's doubtful that outside intervention would help. In the case of Ukraine, it's pretty straightforward: other country invades -> we send lots of tanks for Ukraine to defend itself -> other country is repealed -> Ukraine is not being invaded anymore -> things have improved.

> I very much do not want to sacrifice even the tiniest bit of quality of life because of whatever happens in Ukraine.

Obviously people who disagree outnumber you. Telling them "No! You're wrong! Don't you see the wisdom of my cynicism?" is not going to budge anybody at this point.

I can't believe you even said such a sad thing out load. You don't care what happens to others if your own sad self can keep getting all the food you want and live the good life. The world is connected, Ukraine is a tipping point to Russia slowly taking over democratic countries one by one. Europeans probably care a lot because it's europe and they don't want a war in europe, they are close to Russia. It also sends the signal to China about what we'd do when they feel tempted to attack Taiwan.

Even if you are being cynical about the many wars going on and mistreatment of people, one should be against those too as a moral thing.

> Ukraine > democratic

let me guess, democracy started in Ukraine after ousting the "elected" pro-Russian president and "electing" a pro-Western president?

> I very much do not want to sacrifice even the tiniest bit of quality of life because of whatever happens in Ukraine.

Then move to Hungary, Orban promised that people there won't sacrifice anything.

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