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OECD upbeat on Irish economy but warns on inflation

eurocrat

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More reasonably positve news from Paris today (I get the feeliong we are the OECD's pet student sometimes)

from ireland.com

The Irish economy will grow at a steady rate of five per cent in the medium term but more domestic competition is needed to counter mounting inflation, according to the OECD.

In its latest global economic outlook published today, the Paris-based think tank said the higher consumer spending fuelled by higher incomes and sustained government expenditure will be the engines of growth in Ireland.

The OECD welcomed the proposal to repeal the Groceries Order and called for more competition in sheltered sectors starting with the professions and network industries.
 


SPN

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Mounting Inflation? :shock:

Inflation has been rampant here for a decade.

While we've all been watching the CPI, and wallowing in low interest rates, the money supply - aka Inflation - has been going through the roof.

I think young McWilliams hit the nail on the headperfectly yesterday.

David McWilliams said:
When you touch down in Dublin after your winter break in the sun, the purchasing power of your euro drops considerably. What happens to debase the currency once you pass passport controls at Dublin, Cork or Shannon?

Why does the price of a cup of coffee surge 180 per cent - from €1 in Barcelona to €2.80 in Dublin?

The reason is simple: old-fashioned inflation. Although the official figures do not capture this, Ireland has been in the grip of an inflationary spiral for the past few years.

The easiest way to see this is in the progressive fall in the value of your money in this country and the corresponding increase in the value of the same money when you leave the place.
 

Libero

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I tend to agree with the idea that official inflation is underestimating the overall rise in prices.

But can anyone tell me how the CPI is failing us, or direct me to a website where this explained?

I mean, is the basket of goods being rigged to give a lower inflation figure? How has this come about?
 

owenfeehan

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Anyone want to tell me what a network industries are? Neither wikipedia or google could elucidate me.
 

hiker

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SPN said:
Mounting Inflation? :shock:

Inflation has been rampant here for a decade.

While we've all been watching the CPI, and wallowing in low interest rates, the money supply - aka Inflation - has been going through the roof.

I think young McWilliams hit the nail on the headperfectly yesterday.
I still dont see the problem. If wages are increasing then price increases should'nt make a huge difference.
So your coffee in Barca is cheaper than in Dublin so what; you dont live in Barca.

I would compare the Irish economy to a surfer.
Do you crash out early before the wave hits the rocks or do you ride the wave as long as you can and hope to walk onto the beach. 8)

Can you tell I'm not a economist. :shock:
 

watch-this-drive

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enjoy

http://www.cso.ie/statistics/consumpriceindex.htm

Inflation is 3% this year, and our interest rate is 2%, some sloppy economics suggests a neutral interest rate for Ireland should be about 4%, add to that the growth rate of the economy which is around 5% and it all suggests our interest rate is way too low.
that might not look dramatic but inflation and interest rates have been out of whack for the last 4/5 years and that is enought to cause problems that are irreversible in the short-term (7-8 years)
 

SPN

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Hiker said:
Can you tell I'm not a economist.
Yep. You make sense! :twisted:

Hiker said:
So your coffee in Barca is cheaper than in Dublin so what; you dont live in Barca.
Correct - however: If you are setting up a business where you buy a set of widgets and assemble them into a Gizmo, where would you locate your assembly operation, from a labour cost point of view, Ireland or Barca?

What many people seem to forget is that the bulk of the money being spent on over priced Lattes (and everything else in this economy) is coming from the savings of German pensioners.

We don't create wealth in Ireland, we borrow OPM in increasing amounts, and use it to outbid each other for seriously overpriced trophies.


Libero said:
But can anyone tell me how the CPI is failing us, or direct me to a website where this explained?

I mean, is the basket of goods being rigged to give a lower inflation figure? How has this come about?
Because CPI is not inflation, and Inflation is not CPI.

If the Government increase taxes on cigarettes the CPI will rise.

If the Government increase Civil Servant's salaries Inflation will rise.

Have a read through McWilliams site. He did an article on this a couple of weeks ago IIRC.
 

eurocrat

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Wow the report tells us were looking a 5% economic growth in teh medium term and the that house prices are likelys to hold. THey warn about one and thats all you guys can focus on.

David McWilliams should have more sense. There are 101 reasons why the cup of coffee in Barcelona is cheaper than Dublin. To begin with they don't have a minum wage of 7.65.

Personally I'd rather pay the extra few cents on my cup of coffee to know that the persion serving it is being paid properly.

Anyways inflation is not nessesarlity a bad thing once it is below economic growth.
 

michael1965

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eurocrat said:
Wow the report tells us were looking a 5% economic growth in teh medium term and the that house prices are likelys to hold. THey warn about one and thats all you guys can focus on.

David McWilliams should have more sense. There are 101 reasons why the cup of coffee in Barcelona is cheaper than Dublin. To begin with they don't have a minum wage of 7.65.
Nail on the head. There is absolutely no sense in comparing the price of a cup of coffee in Dublin Airport, with Barca Airport. Compare the downtown prices (where there is a free-market) and you might have something worth talking about.

Sometimes McWilliams gets a bit carried away with his populist style.
 

SPN

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eurocrat said:
Wow the report tells us were looking a 5% economic growth in teh medium term and the that house prices are likelys to hold. THey warn about one and thats all you guys can focus on.
The economic growth figure is speculative. It may or may not come to pass, and $57/bbl oil, coupled with anticipated shortages of Natural Gas this winter, could take big chunks out of this estimate.

House prices will hold for as long as demand outstrips supply. We are now at the stage where lenders have to offer >100% mortgages to keep the market going. The minute demand levels off, due to increasing interest rates, higher energy costs in the broader economy, or a couple of major job losses due to offshoring, the whole edifice will become very unstable.

What the OECD thinks, suspects, surmises or spins on these issues isn't really important.

Inflation, on the other hand, is a major problem in this economy, is being hidden by the way the Euro operates, is regularly confused with CPI, and is a real and present danger to our economic wellbeing.

That is why we picked up on this point more than the others.


David McWilliams should have more sense. There are 101 reasons why the cup of coffee in Barcelona is cheaper than Dublin. To begin with they don't have a minum wage of 7.65.
And the reason their minimum wage is half the Irish minimum wage is because the cost of living in Spain is so much lower than ours!

Personally I'd rather pay the extra few cents on my cup of coffee to know that the persion serving it is being paid properly.
And what about the excessive profit margin being taken by the proprietor, money which he/she is no doubt using to service the mortgage on an apartment or villa in Spain.


Anyways inflation is not nessesarlity a bad thing once it is below economic growth.
I would expect that the Inflation rate in Ireland is way ahead of growth, and that this has been the case for a number of years. Unfortunately, there is no proper measure of Inflation in Ireland, that I know of, since we changed over to the Euro.
 

eurocrat

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SPN, there is some much bull in your last post I don't know where to start.

Give me a while to calm down (people who comment on economics while knowing nothing about it really annoy me..) and I'll address the 'issues' that you have raised.
 

michael1965

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SPN said:
David McWilliams should have more sense. There are 101 reasons why the cup of coffee in Barcelona is cheaper than Dublin. To begin with they don't have a minum wage of 7.65.
And the reason their minimum wage is half the Irish minimum wage is because the cost of living in Spain is so much lower than ours!
But is the guy/gal serving you the coffee really only being paid the minimum wage? I'm pretty sure that these outfits pay more than that. The reason why wage costs are high here, is because of all the high paying jobs we have atracted with foreign investment. High paying tech/banking jobs forces wages to rise across the whole economy ... and that's a good thing surely.

Competition and free markets should constrain the rise in prices to some extent at least.
 

eurocrat

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Okay, I've calmed down now somewhat and can begin to tackle your 'points'

SPN said:
The economic growth figure is speculative. It may or may not come to pass, and $57/bbl oil, coupled with anticipated shortages of Natural Gas this winter, could take big chunks out of this estimate.
So is any other economic prediction. Plus I think you mgoht be confusing Ireland with England there when it come to Gas shortages.

House prices will hold for as long as demand outstrips supply.
Which will not be any time soon with the growth in immigration. Both the OECD and the ERSI have stated this. Do you know something they don't?

The minute demand levels off, due to increasing interest rates, higher energy costs in the broader economy, or a couple of major job losses due to offshoring, the whole edifice will become very unstable.
Doomsday senario. Unlikely. Whats offshoring?

What the OECD thinks, suspects, surmises or spins on these issues isn't really important.
No. Your opinions are far more importnat than that of international economic experts. Who are independant of the goverment by the way.

Inflation, on the other hand, is a major problem in this economy, is being hidden by the way the Euro operates, is regularly confused with CPI, and is a real and present danger to our economic wellbeing.
Explain how its hidden by the way the Euro operates. I'm intrigied.

That is why we picked up on this point more than the others.
People prefer bad news. Specially ones who have political chips on their shoulders.


And the reason their minimum wage is half the Irish minimum wage is because the cost of living in Spain is so much lower than ours!
Here you show some real ignorance. Are wages (not just minimum wage, whcih few people earn, most earning way over it) in Ireland high because the cost of living is high; or is the cost of living high due to the high wages?

Which is a function of which?

And what about the excessive profit margin being taken by the proprietor
Irish propietitors are not the only ones who have profit margins. I'm sure the Spanish have margins too.


I would expect that the Inflation rate in Ireland is way ahead of growth, and that this has been the case for a number of years.
You believe inflaiton in Ireland is in excess of 5% year on year? Howcome you are alone in this beleif? Why has one in the OECD, ERSI, Ceneral Bank, Economist magazine, Bank of Ireland, European Union etc, etc, not coped on to this?

Unfortunately, there is no proper measure of Inflation in Ireland, that I know of, since we changed over to the Euro.
Changing over to the Euro has absolutly nothing to do with how we measure our inflation rate.

What was so great about or pre 2002 measure?
 

agora

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eurocrat said:
And the reason their minimum wage is half the Irish minimum wage is because the cost of living in Spain is so much lower than ours!
Here you show some real ignorance. Are wages (not just minimum wage, whcih few people earn, most earning way over it) in Ireland high because the cost of living is high; or is the cost of living high due to the high wages?

Which is a function of which?
Sorry to get in the middle of this, but really have to take you up on this point. Perhaps I'm misinterpreting you, but are you seriously suggesting that cost-push inflation driven by wage increases is the only type of inflation worth considering? Wages are simply one of many costs which drive business costs up, albeit an important one. Other factors in the economy driving inflation include the high prices in the housing market, which are caused by a shortage of supply, an easy availability of credit (some prudent people might say too easy) and to a certain extent outright profiteering by speculators and others involved in the market.

The affordability of housing has had a major effect on the cost of living, forcing people to demand higher salaries. In the early years of the Celtic Tiger wage rates were still reasonably competitive by Western European standard, however, as the housing "boom" took over people began to require an increasingly high proportion of their wages in order to meet housing costs. The issue of labour supply has effectively been dealt with by immigration from the East, and indeed an increasing number of such immigrants are either accepting illegally low paid jobs or returning home with nothing.

To suggest that increased wages are not a function of other increased costs of living outside of the control of employees is to demonstrate obtuseness of the highest order and to effectively imply that people demand higher wages just for the sheer hell of it.
 

eurocrat

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I agree with you to an extent. I wasn't imply that wages were the sole cause of infaltion.

All I was trying to do was to get SPN to think about the question. The answer would be that both to an certain extent are functions of each other.

It would be my opinion that income is a stronger detriemnt of cost of living than vice versa. I have yet to find a high income country with low prices. Yet countries can have high inflation and yet low or falling wages levels. (e.g. Ireland in the 1970's)
 

michael1965

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agora said:
eurocrat said:
And the reason their minimum wage is half the Irish minimum wage is because the cost of living in Spain is so much lower than ours!
Here you show some real ignorance. Are wages (not just minimum wage, whcih few people earn, most earning way over it) in Ireland high because the cost of living is high; or is the cost of living high due to the high wages?

Which is a function of which?
Sorry to get in the middle of this, but really have to take you up on this point. Perhaps I'm misinterpreting you, but are you seriously suggesting that cost-push inflation driven by wage increases is the only type of inflation worth considering? Wages are simply one of many costs which drive business costs up, albeit an important one. Other factors in the economy driving inflation include the high prices in the housing market, which are caused by a shortage of supply, an easy availability of credit (some prudent people might say too easy) and to a certain extent outright profiteering by speculators and others involved in the market.

The affordability of housing has had a major effect on the cost of living, forcing people to demand higher salaries. In the early years of the Celtic Tiger wage rates were still reasonably competitive by Western European standard, however, as the housing "boom" took over people began to require an increasingly high proportion of their wages in order to meet housing costs. The issue of labour supply has effectively been dealt with by immigration from the East, and indeed an increasing number of such immigrants are either accepting illegally low paid jobs or returning home with nothing.

To suggest that increased wages are not a function of other increased costs of living outside of the control of employees is to demonstrate obtuseness of the highest order and to effectively imply that people demand higher wages just for the sheer hell of it.
You're putting the cart before the horse. Wages are driven (upwards) primarily by what happens in the private sector, and in that sector, nobody demands a wage increase because the cost of housing has gone up. The only way you can demand a wage rise, is by demonstrating that you can get paid better somewhere else, and you are prepared to switch jobs. The cost of housing has been driven upwards by the increase in wages (not the other way round). Supply is a factor too, but it seems that Irish people are prepared to go to the limit of their paying ability (and beyond) when it comes to buying houses.
 

agora

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You're still implying that wage rates are plucked out of the air, without actually relating them to the reasons. Excluding people entering the labour market for the first time(who have to take what they can get), workers in the private sector do demand higher wages, they demonstrate that by choosing that employer who pays the higher wage, (ceteris paribus of course). As regards the housing market, even most right wing economists (including the Economist magazine), agree that it's overvalued, taking into account supply factors, wage rates, etc. The presence of this in the interaction between workers and employers in the labour market must surely have an important effect.
 

SPN

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eurocrat said:
SPN, there is some much bull in your last post I don't know where to start.
:shock:

(people who comment on economics while knowing nothing about it really annoy me..)
:twisted:



So is any other economic prediction.
:shock:

Plus I think you mgoht be confusing Ireland with England there when it come to Gas shortages.
.... and if the Brits take everything out of the pipeline to keep their people warm and their factories producing, there won't be anything left for Paddy!

[quote:n4mvplk2]House prices will hold for as long as demand outstrips supply.
Which will not be any time soon with the growth in immigration. Both the OECD and the ERSI have stated this. Do you know something they don't? [/quote:n4mvplk2]

It is not about knowing something they don't, it is about flagging up a potential point of weakness in our economy.


SPN said:
The minute demand levels off, due to increasing interest rates, higher energy costs in the broader economy, or a couple of major job losses due to offshoring, the whole edifice will become very unstable.
Doomsday senario. Unlikely. Whats offshoring?
Interest rates ARE increasing, energy prices ARE increasing, job losses ARE occuring due to offshoring.

What part of that do you consider "unlikely"?

No. Your opinions are far more importnat than that of international economic experts. Who are independant of the goverment by the way.
Not the point I was making! Do pay attention!

Explain how its hidden by the way the Euro operates. I'm intrigied
There is, to the best of my knowledge, no record kept of M3 in the Irish economy. M3 is the measure of Inflation.

People prefer bad news. Specially ones who have political chips on their shoulders.
We picked it because it is the only one of the three points which can be discussed in a meaningful, or tangible, way. The other two points are, as you have conceded, are purely "speculative".

What political "chip" do I have on my "shoulder"?

Here you show some real ignorance
Y A W W W W W N N N N N N ! ! ! ! ! !

Irish propietitors are not the only ones who have profit margins. I'm sure the Spanish have margins too.
Did you not see the word "excessive" in my post? In Ireland at the moment there is a fashion for Conspicuous Consumption. Why take a small margin when the market will accept a higher one?

You believe inflaiton in Ireland is in excess of 5% year on year? Howcome you are alone in this beleif? Why has one in the OECD, ERSI, Ceneral Bank, Economist magazine, Bank of Ireland, European Union etc, etc, not coped on to this?
They haven't commented on it, to the best of my knowledge - or are you referring to CPI?

Changing over to the Euro has absolutly nothing to do with how we measure our inflation rate.
But we don't measure Inflation anymore! :roll:

What was so great about or pre 2002 measure?
That it existed!!!!! :roll:
 

michael1965

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agora said:
You're still implying that wage rates are plucked out of the air, without actually relating them to the reasons.
The reason was globalisation. Tech/pharma/banking firms arrived here in the 90's offering jobs that were paying less than the same ones in the US/UK etc. but way more than what people were getting here. That is what started the ball rolling. Wage rates in those sectors are much closer between Ireland, UK and the US now.
Excluding people entering the labour market for the first time(who have to take what they can get), workers in the private sector do demand higher wages, they demonstrate that by choosing that employer who pays the higher wage, (ceteris paribus of course). As regards the housing market, even most right wing economists (including the Economist magazine), agree that it's overvalued, taking into account supply factors, wage rates, etc. The presence of this in the interaction between workers and employers in the labour market must surely have an important effect.
They might express a vague opinion, but (especially) right wing comentators will not be any way certain about it. The reason is that they don't like to admit that anything has an objective value, only what someone else is prepared to pay for it. I think it was Alan Greenspan who says that the only way of knowing there is an asset price bubble, is after it has burst. You can never know (for sure) beforehand. There is one objective measure with respect to houses, and that is rents. If rents are falling while prices are rising then that is evidence of a bubble, but it doesn't tell you when or if it will burst.

So for a right-winger, the same applies to the price of a coffee. There is no objective correct price for it. The best you can hope for, is to have a free and competitive market, and the price will find its correct level.
 


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