Friday, September 30, 2022

German Inflation Highest In 70 Years

 I usually post about the US but today it's Germany that's on the spotlight.  And properly so, since German consumer inflation hit 10.9% in September, the highest reading since the end of WWII - see chart below.

 Germans have a deeply imbedded visceral fear of inflation.  After what happened during the Weimar Republic and its Nazi aftermath no one can blame them.  It is very likely, therefore, that German leaders will be pushing the ECB very hard to raise rates more than expected and to - finally - start shrinking its balance sheet to remove liquidity from the system.  I hasten to note that the ECB is very, very far behind the curve in fighting inflation, a situation that is 100% the fault of Mrs. Lagarde.

ECB Balance Sheet Assets Remain Sky-High

With markets already wobbling, the ECB's possible actions will likely bring fresh downward pressure.  It's definitely NOT a good time to go bottom fishing.


  1. btw... notice something fun?... the British are doing QE but the pound is going up (ok from a very low base)... would be interesting if this trend persists...

    1. The new Brit PM has screwed up so royally (pun intended) that the Bank of England stepped in to support the pound and the bond market. Not a good sign.

    2. I understand that QE supports the bond market... how does it support the pound? As in should not QE be bad for the pound?... except that we are seeing the reverse...

    3. Though the effect may be the same on money supply, I wouldn't call the BOE's bond and FX market intervention this week a QE, per se. Basically, they stepped in as buyers in a market that was - literally - crashing. It's not a monetary policy decision, it's a "stop the panic" decision.

    4. okie,, ic... the stability created offsets the impact of the slightly higher amount of money...

      you know, the Russian gas business really got me thinking... in many cases, moving prices is really about moving the marginal cost... so a small addition / subtraction in supply can have a huge impact on overall price... see Russia gas for a current example...

      but I guess the same thing happens here... a small amount of QE has a huge stabilising effect... to the point that the point goes up rather than down... thanks hell. =)

    5. When a major central bank intervenes in the day to day secondary market for bonds, or in the FX market, NO ONE bets against it - at least not very short term. It’s really not at QE operation. What happens practically is that a cenbank trader calls the dealing room of one or multiple banks and buys bonds or fx. This is immediately signaled throughout the market and everyone raises their prices. A central bank is not a “normal” counterparty, its actions signal intent.

    6. got it... so a central bank bond purchase is like a Fed,... whatever-it-takes...., announcement...

      we are getting more and more whatever-it-takes announcements though... Ukraine will win, whatever-it-takes. US inflation will be below 2%, whatever-it-takes. The gilt prices will remain up, whatever-it-takes. Italy will not default, whatever-it-takes. Spain will not default, whatever-it-takes.... =)

    7. Whatever it takes, aka The Fool’s Errand ;)

    8. Ukraine must win, whatever it takes, otherwise Russians will just start another war down the road. Ideally, Russia should be broken up into several republics. The world will breathe a sigh of relief and the thousand year old cycle of Russian imperialism will end.