Good Morning, DJ! I think me and you have to inject into BBR a European view of the state of affairs.
As you may have noticed, the discussion is being too US-centered. Nothing wrong with that. There is a lot of stuff for us to keep munching.
But I see a problem. It appears at times facts that contradict the views of the Japan - US economic conditons.
Take inflation for instance. Euroland is not deflating.
Inflation
Published: March 24 2002 20:38 | Last Updated: March 24 2002 20:46
Ignore Italian motorists at your peril. That is the message some took from traces of higher fuel costs in last week's advance data on Italian inflation in March. It was backed up by rising energy costs among German Landers, which have driven up expectations for German inflation. The impact of higher oil prices is unnerving some investors. In March, fund managers expecting eurozone inflation to rise this year far outstripped those who expected it to fall, according to a Merrill Lynch survey. Last month it was the other way around. European bond markets are pricing in at least 50 basis points more central bank tightening this year than most economists expect.
The European Central Bank, however, does not appear to be on high alert. Nor should it be. Oil prices - provided they stabilise around $25 a barrel - may delay a drop in inflation to below the ECB's 2 per cent upper threshold. But only temporarily. Unless a US attack on Iraq or a sharp mismatch between supply and demand pushes Brent near $30 a barrel, companies are likely to absorb the higher energy costs, rather than passing them on to consumers.
If oil prices surge, the bigger danger would be for growth, as consumption in the eurozone remains weak, and corporate profitability is strained. Rising oil prices act like a tax, with disinflationary consequences. That may explain why in the Merrill Lynch survey, three quarters of fund managers are happy with the ECB's monetary stance, despite higher inflation expectations. |
