Macro roundup: Inflation everywhere

Well, that escalated quickly

With inflation as one of the hottest economic topic of the moment, data today showed Greek consumer prices in September rose at their fastest rate in almost a decade.

The country still lags well behind the euro-area average of 3.4 percent — with only Malta having a lower inflation rate. But the 1.9 percent year-on-year increase in Greece’s EU-harmonized index of consumer prices was the first time since 2012 that its rate touched the European Central Bank’s target of just below 2 percent.

That’s quite the turnaround since the spring, when the country remained mired in deeply deflationary territory.

The rate calculated using Greece’s national measure was even higher in September, reaching 2.2 percent.

Some of the alarm in the euro area about the current inflationary wave has been further fed by the reading for core inflation — which strips out more volatile elements like energy and food — which is also spiking, reaching 1.9 percent in September. That’s an increase of 1.2 percentage points since July, giving ammunition to hawks arguing that the inflation increase is permanent rather than transitory.

Here, Greece still stands somewhat apart.

Taking the national index measure — where the index readings for core inflation are available — core CPI continued falling right up until last month, when it increased just 0.1 percent. That’s still a significant uptick compared with the drop of 2.8 percent in March, but it shows that price pressure remains heavily concentrated in energy and food costs.

If a generalised increase in prices — which is more likely to be feature of permanently higher inflation — is most likely to manifest as a broad range of categories increasing at a similar rate, Greece still doesn’t support that hypothesis. Prices are still falling in a third of the categories in the EU-harmonized index.

The picture right now fits far more with the alternative scenario, where current price increases are the aggregated effects of dislocation in individual markets. That is more likely to be transitory.

Monetary policy

As the years fly by, Yiannis Stournaras is becoming one of the veterans on the European Central Bank’s governing council. With that, he’s started to become a more vocal member of the ECB’s dovish wing.

In an interview with Bloomberg this week, Greece’s central bank chief pushed back against market expectations of a rate hike in 2022, pointing out that this is not in line with the ECB’s forward guidance.

Meanwhile, the ECB on Wednesday released its latest figures for bond buying under the pandemic emergency purchase programme. The central bank purchased 2.78 billion euros of Greek government bonds in August and September, down from 3.72 billion euros in the previous two months.

The decrease is not the kind of dramatic drop that might have been feared given the extent of the ECB’s holdings of Greek bonds.

Frederik Ducrozet has this useful chart:

I wrote on this subject in May, explaining why 33 percent was a symbolic level that would have entailed some potentially uncomfortable conversations before it was breached. Fortunately, it seems those conversations went well.

In his interview, Stournaras again pushed the case for including Greek government bonds in regular QE purchases after PEPP expires in March. But with current pace of purchases, it may be good idea for the Public Debt Management Agency to start issuing some more bonds in the meantime. Just to make sure there’s enough left for the ECB to buy.

Other data

  • Industrial production increased 10.1 percent in August from a year earlier, compared with 7.8 percent in July. Electricity supply increased 25.5 percent August, so presumably much of the increase was due to greater use of A/C units during the heatwave. Manufacturing increased 6.2 percent.

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Next week’s key data

Tuesday, Oct. 12:
  • July building activity (Elstat)

Wednesday, Oct. 13:
  • August unemployment (Elstat)

Friday, Oct. 15:
  • January to September central government budget execution (Finance Ministry)

Elsewhere on the web

  • Back to where we started, and Adam Tooze has a very useful roundup on the Great Inflation Debate.

  • And here’s Chris Marsh’s excellent contribution to the debate from May. I linked to it at the time, but it’s been doing the rounds again this week so I thought it worth including again for anyone that missed it.

  • Der Spiegel has an investigation on violence at the EU’s borders.

  • The latest offshore leaks implicate the Cypriot president’s law firm.

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