German Inflation Revised Down

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I like this title. I have, I unashamedly admit, lifted it straight from NTC research (where it was in any event hardly the most creatively original of headers). I like it since it seems to run counter in spirit to all those admonishing lectures we are currently getting about the dangers of ‘secondary inflation’ and pass-through. The headline refers to the fact that Germany’s EU-harmonised annual inflation rate (HICP) for September was revised down to 2.6 percent from an initial 2.7 percent, the Federal Statistics Office announced on Wednesday. Actually this revision is something of a statistical freak as the reading in question was the harmonised consumer price index for Germany, which is calculated for European purposes. In fact AP runs a different headline: German Inflation Rate Climbs in September, which doesn’t really prove that there are lies, damn lies and statistics, but rather that we have a labyrinth of statistical indices at work – AP quote the straight national CPI, and not the harmonised index. Anyway, if you can battle your way through all this, well good luck to you!

Much more to the point, however, is the detail that , not considering heating oil and motor fuel, the rate of price increase would have been just 1.6%. Inflation scare? Where? Oh yes, I forgot, in Spain and Greece.

As reported by the Federal Statistical Office, the consumer price index for Germany rose by 2.5% in September 2005 on September 2004, and by 0.4% on August 2005. That is the highest year-on-year rate of increase for more than four years (May 2001: +2.7%). In July and August 2005, the year-on-year rates of change were +2.0% and +1.9%, respectively. The estimate for September 2005 based on the results from six Länder was thus confirmed.

The year-on-year rate of price increase was strongly influenced by the sustained price increase for energy in September 2005. In that month, price increases were recorded primarily for mineral oil products again. Not considering heating oil and motor fuel, the rate of price increase would have been just 1.6%. Domestic fuel prices were up 40.0% compared with the same month a year earlier.
Source: German Federal Statistical Office

Hungary Gets A Rap On The Knuckles Too

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Hungary converted itself into the latest country to join the line of EU members awaiting chastisment for failing to enforce budgetary discipline after it became clear that its deficit for 2005 could be almost double official forecasts.

Joaquín Almunia, EU monetary affairs commissioner, told European finance ministers Hungary’s deficit this year was projected to be 6.1 per cent although some economists say it could top 7 per cent.

The state of Hungary’s public finances was only revealed after the country’s central bank blew the whistle on the government, which used creative accounting to massage down the deficit. The revelation is embarrassing for the European Commission, which reported in July that Hungary was “within reach” of achieving its targeted deficit for 2005 of 3.6 per cent.

For Our Washington DC Readers

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Both of you.

John Barry, author of Rising Tide a rather timely book about flooding and New Orleans and of The Great Influenza a rather timely book about the 1918 pandemic, will be half of a panel about hurrican Katrina at Politics & Prose bookstore this Friday at 7pm. The store is at 5015 Connecticut Ave NW, and if you don’t know it already, you’re in for a treat.

UK and German Retirement Policies Compared

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As we all know raising the participation rates of older workers is both essential and a core component of the Lisbon Agenda, so here’s a timely report from the Anglo-German Foundation for the Study of Industrial Society comparing policies directed towards older workers in the UK and Germany. More salacious material to stimulate all you policy wonkers out there. (Hat Tip to David from North Sea Diaries). Looking at the table on page 3 the UK seems to have been a good deal more successful in acieving these objectives over the last decade. In both coutries male participation rates in the 55-64 age group has actually gone down since 1990, with the increase for the group as a whole being a matter of increasing female participation. On the other hand the UK has managed to reverse the 1990 – 2000 downward male trend and between 2000 and 2004 55-64 male participation went up, something which it noticably didn’t do in Germany.

The report concludes that the primary deficit concerning active labour market policies for older unemployed in Germany is the lack of specific targeting of this group both in active job placement and training. In the UK, the scope of active measures is rather limited both with regard to the kind of measures � New Deal 50 plus/New Deal 25 plus � and the level and duration of funding………In the UK � despite a more socially inclusive stance recently � funding of job creation and a broad application of training measures has not taken place so far, given the low intervention character of labour market policies. In Germany, in the wake of recent labour market reforms, a shift in paradigm towards a more activating approach to job placement has been implemented.

The Con-fusion

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I’m probably the last blogger still reading Neal Stephenson’s Baroque Cycle, and chances are good that I won’t take on the third part, The System of the World, immediately after finishing the second, The Confusion. Not because the books aren’t good, just that it is a lot to read consecutively.

The good news is that the main characters, Jack Shaftoe and Eliza the Improbable Welshwoman, are much more interesting than they were in Quicksilver.
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Being Right After The Event

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The FT has a piece on the growing tensions within the Republican tent over Iraq.

If we quit now, said Condoleezza Rice, the secretary of state, in a speech at Princeton University last month, we will embolden every enemy of liberty and democracy across the Middle East. We will destroy any chance that the people of this region have of building a future of hope and opportunity. And we will make America more vulnerable.

She is right. This was always the risk, that the objectives were unrealistic and that the US would come out weakened, but it seems that at the time few were willing to listen.

Kanan Makiya, an outspoken proponent of the war who is documenting the horrors of the Saddam regime in his Iraq Memory Foundation, opened the AEI meeting by admitting to many dashed dreams.

He said he and other opposition figures had seriously underestimated the powers of ethnic and sectarian self-interest, as well as the survivability of the constantly morphing and flexible Ba’ath party. He also blamed the Bush administration for poor planning and committing too few troops.

Well this seems to be another example of what at times rather than shouting it may be better from time to time to listen to what your opponents are actually saying. If you strip out the WMD argument, concern about “ethnic and sectarian self-interest” and the impact of this on any subsequent political process was always the major preoccupation of those who had doubts.

Oil Demand Expected To Stay High

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The International Energy Agency have just published their forecast for oil demand next year, and its more of the same, with the emphasis on more.

Global oil consumption is expected to increase by 1.75m barrels a day next year to total 85.2m b/d, suggesting that a recent fall-off in demand is temporary… For 2006, the IEA revised its forecast of non-Opec supply down 335,000 b/d to an average of 50.3m b/d.

Delays and declining production in Canada, the UK, Asia and Sudan are expected to damp production growth next year. The massive damage to platforms and rigs caused by Katrina and Rita will be felt outside the US as well, increasing costs and causing rig shortages in places such as the Middle East, where two of the rigs damaged by Rita had been scheduled to move this year.

At the same time, the world’s thirst for oil shows few signs of abating, despite high prices. The IEA said that weakening of demand this month was likely to be a short-lived side effect of bottlenecks in distribution caused by the US hurricanes.

ECB Interest Rate Policy

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Brad Setser has a post today on Kate Moss, not provoked by her evidently economically intriguing modelling properties, but due to the Kate-Moss-thin credit-spreads which Bloomberg’s William Pesek refers to in this article. What really turns Pesek on it turns out isn’t Kate Moss at all but the possible existence of links between China’s economic boom and the recent surge in popularity for credit derivatives.

And it is in the context of this evolutionary chain that Brad Setser’s work on China and Systematic Risk offers itself as some kind of missing link.
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China: Eating our Lunch or Taking us to Dinner?

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That’s the dilemna posed by the latest paper from Laurence Kotlikoff Hans Fehr and Sabine Jokisch: Will China Eat Our Lunch or Take Us to Dinner. Simulating the transition paths of economies in the U.S., EU, Japan, and China the paper develops a dynamic, life-cycle, general equilibrium model to study their interdependent demographic, fiscal, growth and current account evolution.

Having taken a close look at the respective population dynamics they point out that as a consequence of relatively high fertility and net immigration rates, the U.S. population is projected to increase from 275 million in 2000 to 442 million in 2100. In Europe – as we all already know – population may well fall over the next century from 375 to 340 million, while in Japan, the population falls from 126 million to 85 million. However the projections show the Chinese population decreasing by even more – from 1.3 billion to 1.2 billion. Although China is in fact aging rapidly, its saving behavior, growth rate, and fiscal policies are currently very different from those of developed countries. Kotlikoff et al find that if successive cohorts of Chinese continue to save like the current cohorts, if the Chinese government can restrain growth in expenditures, and if Chinese technology and education levels ultimately catch up with those of the West and Japan, the developed world’s long run future looks much brighter. China eventually becomes the world’s saver and, thereby, the developed world’s savoir with respect to its long-run supply of capital and long-run general equilibrium prospects.

In a recent article on declining yield differentials William Pesek (Hat Tip Brad Setser) asks “What’s China got to do with all this?”. Perhaps the paper by Kotlikoff et al offers him part of the answer. (I have more on this paper here).

In No Hurry

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The EU Observer reports today on how some states are decidedly tardy in producing their Lisbon Agenda action plans:

Embassies are due to hand in their national plans, consisting of 30-40 page dossiers with statistical annexes, by the weekend, with EU experts flying back and forth to member states in the past few weeks to help finalise the texts.

France, Sweden and Denmark told EUobserver that they will not make the Saturday deadline however, while question marks hang over Germany and Poland as well.

Paris hopes to send in its document by the end of this month, Stockholm is aiming for 21 October and Denmark for the “next few weeks”, citing delays over the late sitting of parliament and translation back home….

The UK, the Netherlands, Greece, the Czech republic, Hungary, Slovakia and Slovenia confirmed that they will get their plans in by the weekend however, with the Czech republic claiming to have had its text finished months ago.

Mind you, we should put all this in some kind of context, according to another EU Observer article the OECD (see this post) is at pains to convince some member states that they really do need to seriously address their early retirement culture!

Europe needs to stop subsidising the early retirement of its citizens, despite social protests caused by pension reforms, according to a new OECD report…….According to the paper, several European countries have been striving to sustain their early retirement culture, introduced in the past as a way to tackle high unemployment among young people

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