Post by jeffolie on Nov 14, 2012 18:07:10 GMT -6
3.5% inflation, Spain in Great Depression, paradox
" ... Both Greece and Spain are in the midst of huge depressions. The unemployment rate in Spain is 25.8%, in Greece it's 24.4%. Youth unemployment is over 50% in both countries. Greece is in its 6th year of depression and GDP is down another 7.2%. Expect Spain to follow.
" ... Headline inflation was 3.5 percent, according to both European Union and Spanish calculations, matching an estimate published on Oct. 30.
European Industrial Production Plunges 2.3 Percent; Greece GDP Plunges 7.2 Percent
Expect France and Germany to take a big economic dive as well.
=================================
Bloomberg News
Spanish Core Inflation Surges as Rajoy Mulls Pension Hike
November 13, 2012
Spain’s underlying inflation accelerated in October after tax increases, adding to pressure on the government as it considers whether to risk the budget by compensating pensioners for higher living costs.
Annual core inflation, which excludes energy and fresh food prices, rose to 2.5 percent from 2.1 percent a month earlier, the National Statistics Institute in Madrid said today. That compares with a 2 percent median forecast of six estimates in a Bloomberg survey. Prices rose 1.3 percent from September.
Prime Minister Mariano Rajoy has set himself a December deadline to decide whether to raise pensions in line with inflation and which gauge of prices he should use to do so. As the government struggles to rein in the euro region’s second- largest budget gap, the statistics institute has created a new inflation measure that excludes tax increases.
Headline inflation was 3.5 percent, according to both European Union and Spanish calculations, matching an estimate published on Oct. 30. Excluding the impact of tax increases, the annual inflation rate based on Spanish calculations was 1.5 percent, falling to 0.5 percent if fresh food and energy were also stripped out.
Pensions Increase
The government increased pensions 1 percent this year in one of the few campaign pledges it kept since coming to power in December, and says it’s still considering whether to apply a law that obliges it to compensate pensioners for inflation above that level. It may change the indicator it uses to calculate prices, Deputy Economy Minister Fernando Jimenez Latorre said on Oct. 11.
The government has said it will decide on pensions once it sees the November inflation data, which INE will publish as an initial estimate on Nov. 30 and with a full breakdown on Dec. 13. Updating pensions in line with the headline rate, as set out in the existing law, would cost an additional 3 billion euros ($3.8 billion), according to the Bank of Spain.
The European Commission last week forecast the five rounds of tax increases and spending cuts Rajoy has implemented in less than a year won’t be enough for Spain to meet its deficit goals through 2014. The second recession since 2009, which has pushed unemployment above 25 percent and is undermining revenue, will continue next year, according to commission estimates.
www.businessweek.com/news/2012-11-13/spanish-core-inflation-surges-as-rajoy-mulls-pension-hike
=============================
November 14, 2012
European Industrial Production Plunges 2.3 Percent; Greece GDP Plunges 7.2 Percent
Expect France and Germany to take a big economic dive as well.
globaleconomicanalysis.blogspot.com/2012/11/european-industrial-production-plunges.html
===========================
November 14, 2012 3:18 PM
Looking Ahead, Spain Worse Than Greece; Only One Realistic Solution
Both Greece and Spain are in the midst of huge depressions. The unemployment rate in Spain is 25.8%, in Greece it's 24.4%. Youth unemployment is over 50% in both countries.
Greece is in its 6th year of depression and GDP is down another 7.2%. Expect Spain to follow.
Matthew Dalton, writing for the Wall Street Journal explains Where Spain Is Worse Than Greece
By most measures, Greece’s economy is in worse shape than Spain’s. Greece has been largely shut off from financial markets for more than two years; yields on its bonds are still sky high. Gross domestic product has fallen nearly 20% over the previous three years. Spain can still borrow from private investors, and its GDP has fallen around 5% during the crisis.
But if you take forecasts from the European Commission seriously, Greece enjoys one formidable advantage over Spain: Its economy is running well below capacity, while the Spanish economy, despite an unemployment rate around 25%, is operating relatively close to full steam.
Why is that an advantage? According to the commission, it means that the Greek unemployment rate should fall sharply if the economy starts to recover again, without causing inflation. Spain faces a much more difficult situation. If the structure of its labor market doesn’t change, the commission’s analysis suggests that a nascent economic recovery in Spain could be hampered by labor shortages that would spark wage inflation.
Greece faces similar problems, but they are less serious, according to the commission’s analysis. Yes, the “government-borrows-money-and funds-consumption” model of growth won’t be available to Greece anymore. But it didn’t endure the same private-sector credit bubble that hit Spain during the previous decade.
The differences between Greece and Spain can be seen in several economic metrics published by the commission. There is the output gap, or the difference between actual GDP and potential GDP (as a percentage of potential GDP). The figure is a whopping 13% for Greece but just 4.6% for Spain.
Then take a look at the commission’s estimates of the so-called non-accelerating wage rate of unemployment (NAWRU) in Greece and Spain. This is the unemployment rate below which the commission believes the inflation rate starts to rise. It’s also known as the “natural rate” of unemployment. The natural unemployment rate for Greece is around 14.8%; it is 21.5% for Spain. This despite unemployment rates around 25% in both countries.
Spain’s structural budget deficit is somewhat smaller than its actual deficit (6.3% of GDP vs. 8%), because of the country’s weak economy. But most of the deficit is still “structural,” according to the commission, a disturbing thought in a country where 25% of the workforce is unemployed.
And because the euro zone’s new “Fiscal Pact” requires countries to bring their structural deficits under 0.5% of GDP, Spain still has a lot of government austerity to endure before the cutting is done.
Only One Realistic Solution
I do not subscribe to the concept of a "natural rate of unemployment". Nonetheless, if even half of what Dalton writes is true, Spain is in a world of hurt.
I do think Dalton hits the target on structural issues and that puts an unsolvable problem on the Spanish government that is struggling mightily to not subject itself to Troika-imposed austerity measures in return for a bailout.
Eventually Spain, like Greece will see the light. The only way out of this mess is to leave the euro and simultaneously undertake structural reforms
Read more at globaleconomicanalysis.blogspot.com/#P9RImsiUv1fumxFX.99
" ... Both Greece and Spain are in the midst of huge depressions. The unemployment rate in Spain is 25.8%, in Greece it's 24.4%. Youth unemployment is over 50% in both countries. Greece is in its 6th year of depression and GDP is down another 7.2%. Expect Spain to follow.
" ... Headline inflation was 3.5 percent, according to both European Union and Spanish calculations, matching an estimate published on Oct. 30.
European Industrial Production Plunges 2.3 Percent; Greece GDP Plunges 7.2 Percent
Expect France and Germany to take a big economic dive as well.
=================================
Bloomberg News
Spanish Core Inflation Surges as Rajoy Mulls Pension Hike
November 13, 2012
Spain’s underlying inflation accelerated in October after tax increases, adding to pressure on the government as it considers whether to risk the budget by compensating pensioners for higher living costs.
Annual core inflation, which excludes energy and fresh food prices, rose to 2.5 percent from 2.1 percent a month earlier, the National Statistics Institute in Madrid said today. That compares with a 2 percent median forecast of six estimates in a Bloomberg survey. Prices rose 1.3 percent from September.
Prime Minister Mariano Rajoy has set himself a December deadline to decide whether to raise pensions in line with inflation and which gauge of prices he should use to do so. As the government struggles to rein in the euro region’s second- largest budget gap, the statistics institute has created a new inflation measure that excludes tax increases.
Headline inflation was 3.5 percent, according to both European Union and Spanish calculations, matching an estimate published on Oct. 30. Excluding the impact of tax increases, the annual inflation rate based on Spanish calculations was 1.5 percent, falling to 0.5 percent if fresh food and energy were also stripped out.
Pensions Increase
The government increased pensions 1 percent this year in one of the few campaign pledges it kept since coming to power in December, and says it’s still considering whether to apply a law that obliges it to compensate pensioners for inflation above that level. It may change the indicator it uses to calculate prices, Deputy Economy Minister Fernando Jimenez Latorre said on Oct. 11.
The government has said it will decide on pensions once it sees the November inflation data, which INE will publish as an initial estimate on Nov. 30 and with a full breakdown on Dec. 13. Updating pensions in line with the headline rate, as set out in the existing law, would cost an additional 3 billion euros ($3.8 billion), according to the Bank of Spain.
The European Commission last week forecast the five rounds of tax increases and spending cuts Rajoy has implemented in less than a year won’t be enough for Spain to meet its deficit goals through 2014. The second recession since 2009, which has pushed unemployment above 25 percent and is undermining revenue, will continue next year, according to commission estimates.
www.businessweek.com/news/2012-11-13/spanish-core-inflation-surges-as-rajoy-mulls-pension-hike
=============================
November 14, 2012
European Industrial Production Plunges 2.3 Percent; Greece GDP Plunges 7.2 Percent
Expect France and Germany to take a big economic dive as well.
globaleconomicanalysis.blogspot.com/2012/11/european-industrial-production-plunges.html
===========================
November 14, 2012 3:18 PM
Looking Ahead, Spain Worse Than Greece; Only One Realistic Solution
Both Greece and Spain are in the midst of huge depressions. The unemployment rate in Spain is 25.8%, in Greece it's 24.4%. Youth unemployment is over 50% in both countries.
Greece is in its 6th year of depression and GDP is down another 7.2%. Expect Spain to follow.
Matthew Dalton, writing for the Wall Street Journal explains Where Spain Is Worse Than Greece
By most measures, Greece’s economy is in worse shape than Spain’s. Greece has been largely shut off from financial markets for more than two years; yields on its bonds are still sky high. Gross domestic product has fallen nearly 20% over the previous three years. Spain can still borrow from private investors, and its GDP has fallen around 5% during the crisis.
But if you take forecasts from the European Commission seriously, Greece enjoys one formidable advantage over Spain: Its economy is running well below capacity, while the Spanish economy, despite an unemployment rate around 25%, is operating relatively close to full steam.
Why is that an advantage? According to the commission, it means that the Greek unemployment rate should fall sharply if the economy starts to recover again, without causing inflation. Spain faces a much more difficult situation. If the structure of its labor market doesn’t change, the commission’s analysis suggests that a nascent economic recovery in Spain could be hampered by labor shortages that would spark wage inflation.
Greece faces similar problems, but they are less serious, according to the commission’s analysis. Yes, the “government-borrows-money-and funds-consumption” model of growth won’t be available to Greece anymore. But it didn’t endure the same private-sector credit bubble that hit Spain during the previous decade.
The differences between Greece and Spain can be seen in several economic metrics published by the commission. There is the output gap, or the difference between actual GDP and potential GDP (as a percentage of potential GDP). The figure is a whopping 13% for Greece but just 4.6% for Spain.
Then take a look at the commission’s estimates of the so-called non-accelerating wage rate of unemployment (NAWRU) in Greece and Spain. This is the unemployment rate below which the commission believes the inflation rate starts to rise. It’s also known as the “natural rate” of unemployment. The natural unemployment rate for Greece is around 14.8%; it is 21.5% for Spain. This despite unemployment rates around 25% in both countries.
Spain’s structural budget deficit is somewhat smaller than its actual deficit (6.3% of GDP vs. 8%), because of the country’s weak economy. But most of the deficit is still “structural,” according to the commission, a disturbing thought in a country where 25% of the workforce is unemployed.
And because the euro zone’s new “Fiscal Pact” requires countries to bring their structural deficits under 0.5% of GDP, Spain still has a lot of government austerity to endure before the cutting is done.
Only One Realistic Solution
I do not subscribe to the concept of a "natural rate of unemployment". Nonetheless, if even half of what Dalton writes is true, Spain is in a world of hurt.
I do think Dalton hits the target on structural issues and that puts an unsolvable problem on the Spanish government that is struggling mightily to not subject itself to Troika-imposed austerity measures in return for a bailout.
Eventually Spain, like Greece will see the light. The only way out of this mess is to leave the euro and simultaneously undertake structural reforms
Read more at globaleconomicanalysis.blogspot.com/#P9RImsiUv1fumxFX.99