Wednesday, April 21, 2010

The Ten Percent Solution?

For most of Guambat's six decades plus long life, the standard, wet-finger-in-the-air benchmark for interest rates has been ten percent. Mind you they have fluctuated, and rather violently in the 1980's, but for the most part you'd often hear people say, "well, assume you get 10% ...."

Since Greenspan, however, real and nominal rates have been south of that 10% "norm".

Are we soon to revert to mean? You might expect so if we continue to be stuffed full of stimulus and bail out moneys, but where're the "green shoots" of inflation that would get us there?

Well, Australia has been raising rates multiple times in the last year due to heating economy, and China (always China) has been reporting trouble holding its tiger in line, and now this:

Sharp inflation rise may force Bank to raise interest rates
Sharply higher petrol, gas and food prices have pushed inflation to "uncomfortably high" levels, ahead of City expectations, raising fears that the Bank of England may need to lift interest rates sooner than expected. The cost of motoring is about 17 per cent up on a year ago, and some food prices may spike further as a result of the no-fly zone restricting imports of some fruit and vegetables.

The spike in inflation will also further depress the real returns being offered to savers. The real return on an average no-notice account, after basic tax and inflation, today stands at minus 2.82 per cent, according to the price comparison website Moneyfacts.

Although still historically low, British inflation is markedly higher than in other comparable advanced economies. "Core" inflation, which strips out volatile items such as fuel and food, is also up, from 2.9 per cent to 3 per cent.
California home default cases plunge
Mortgage default notices — the first step toward foreclosure — plunged 40.2% statewide in the first three months of the year compared with the same period in 2009, according to San Diego research firm MDA DataQuick.

Foreclosure sales dropped 1.7% from a year earlier and 16.1% from the last three months of 2009, DataQuick said Tuesday.

The numbers suggest that the housing market won't be flooded by a fresh wave of bank repossessions, which had been seen as a major threat to the market's recovery.
BOJ's Nishimura: signs Japan escaping deflation
Bank of Japan Deputy Governor Kiyohiko Nishimura said on Wednesday there are positive signs that Japan will escape deflation.

"It can be said that some beams of light are starting to break through a thick cloud of deflation."
India Boosts Rates To Tackle Inflation
As expected, India has joined Australia in lifting rates more than once to try and control a strong recovery.

Vietnam and Malaysia have also lifted rates, China has started a small tightening via lifting asset ratios and curtailing bank lending and Singapore has boosted the value of the Singapore dollar as a first, and possibly only step to start controlling a strong rebound.

First signs of an inflationary spring, or still too much to swallow?

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