Interesting Inflation News Links (February 18, 2009)

* Latvian ministry: GDP to shrink 12 pct (Boston Globe)

Latvia’s Finance Ministry announced on Wednesday that the economy will shrink 12 percent this year, the bleakest forecast yet for the troubled Baltic state.

* MPC’s Tim Besley says more action needed to avoid deflationary spiral (Angela Monaghan, Telegraph)

In a speech at the London School of Economics on Tuesday evening he said: “The challenge for the MPC in the coming months will be to ensure that the inflation target remains credible in the face of a weaker economy and with the much weaker outlook for global commodity prices.

* Fed downgrades economic forecast for this year (Jeannine Aversa-)

The Federal Reserve on Wednesday sharply downgraded its projections for the country’s economic performance this year, predicting the economy will actually shrink and unemployment will rise higher.Under the new projections, the unemployment rate will rise to between 8.5 and 8.8 percent this year. The old forecasts, issued in mid-November, predicted the jobless rate would rise to between 7…

* Bank of England’s David Blanchflower wanted a bigger cut in interest rates (Bloomberg News)

The MPC, led by Governor Mervyn King, voted 8-1 to cut the main rate to 1pc, the lowest since the Bank was founded in 1694, minutes of the Feb. 5 decision published in London today show.

* Federal Reserve official warns of deflation risk

With the economy spinning deeper into recession, the country might suffer a dangerous bout of falling prices, or deflation, a Federal Reserve official warned Tuesday.

* Gold hits record against euro on fear of Zimbabweanstyle response to bank crisis (Ambrose Evans-Pritchard, Telegraph)

“This gold rally is driven by safe-haven fears and has a very different feel from the bull market we’ve had for the last eight years,” said John Reade, chief metals strategist at UBS. “Investors are seeing articles in the press saying governments should deliberately stoke inflation, and they are reacting to it.”

* Trichet refuses to rule out further interest rate cuts (Ailish O’Hora, The Irish Independent)

The European Central Bank has to prepare for exceptional situations and does not rule out further interest rate cuts to support the eurozone economy, bank president Jean-Claude Trichet said yesterday.

* Iran’s revolution: 30 years on (BBC News)

In 1979 the Shah of Iran departed and Ayatollah Khomeini returned from exile to be greeted at the airport in Tehran by millions of Iranians – and it felt like the world shook.

* Pay freezes for workers as inflation hits lowest level for 50 years experts warn (Myra Butterworth, Telegraph)

Experts warned that the lowest rate of the cost of living since 1960 will lead to the biggest downward pressure on incomes since the Second World War.

* Feds Bullard emphasizes danger of deflation (David Nicklaus, St. Louis Post-Dispatch)

James Bullard, president of the St. Louis Federal Reserve Bank , has spent most of his career figuring out how to fight inflation. So when he stands up and says that what we need is more inflation, people should take notice.

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