Ground Floor: With the seasonal shopping-fest about to kick into top gear, retailers are no doubt hoping that consumers haven't been scared off by the recent ECB rate hike. The media has made much of the fact that the quarter percentage point rise, after two years at historically low levels, is a reminder that rates can rise as well as fall and that profligate spenders shouldn't lose sight of the fact when they're handing over their credit card in the seasonal splurge.
Financial commentators, for so long with nothing to talk about as far as ECB actions were concerned, suddenly began penning articles about the hawkish nature of the bank when it came to inflation, while at the same time expressing the opinion that Europe's economies were hardly in rampant inflationary mode.
Actually, many commentators (and politicians) would have liked the ECB to have slashed rates even further over the past two years to re-energise the clearly stagnant Old Europe economies, but the ECB reminded them that their goal was inflation-oriented and that they didn't have a mandate to ignite European market activity. So they stuck with their 2 per cent base rate even while the Fed hacked rates down to 1 per cent. Growth in the euro zone has been fairly pedestrian at 2.6 per cent, while the US posted growth of 4.3 per cent over the past year, so you can see the analysts' point.
There are many people who worry that the ECB's action was entirely unnecessary given that most euro-zone economies are merely ticking along, despite property booms led by Ireland and the UK.
The ECB may not have followed Greenspan's example in cutting rates but Jean-Claude Trichet, the ECB president, certainly followed the Fed example of priming the markets for the increase and it came as no surprise. Basically, the rationale is that euro-zone inflation is running at around 2.4 per cent. The ECB's target level is 2 per cent. It's hardly anxiety ridden stuff, but Trichet said that economic growth and job creation in Europe would be helped by steady price growth instead of, presumably, surging inflation. I guess it's hard for any of us who lived through double-digit inflation rates to get hugely exercised over inflation at 2 per cent or even 3 per cent, but the ECB has promised that it's monitoring the situation and that further rate hikes will not be ruled out.
Most of the people I talked to over the past week - whether or not they remembered rampant inflation and interest rates - didn't really care about this hike. An additional € 30 a month on their mortgage wasn't going to break the bank. As one friend pointed out, she spends more on a round of drinks with friends. (That remark did lead to a discussion about the cost of socialising in Ireland but, despite the shock-horror comments regarding the price of a pint and a meal for two in an allegedly cheap'n'cheerful restaurant, nobody felt that higher interest rates would make a difference.) My friend reckoned that she had scope to cut back on the socialising post-Christmas if necessary, and anyway the SSIA would come up trumps soon!
And that's part of the problem for the ECB. While some Europeans will find it more difficult to absorb the rate hike, here in Ireland, with growth closer to US levels, we're not too bothered. The Central Bank might be concerned about our spending habits, but the retailers will be thankful that a quarter point hike shouldn't impact on the tills.
They're not leaving things to chance in the US, though. Wal-Mart, the world's largest retailer, announced that sales in their stores are rising though they're crediting grocery sales for the increase. They reckon that December's sales will be up to 4 per cent higher than this time last year and that sales of food have been ahead of everything else. That's been the case 18 of the last 21 weeks. Clearly all of the health-scare programmes about high-salt, high-saturated fat and high-sugar haven't been enough to slow down the US feeding frenzy!
Or maybe the advertising is just too good - Wal-Mart began their Christmas campaign at the beginning of November, with deep discounts on consumer goods to attract shoppers into the stores. This is in contrast to last year where they reported disappointing sales and didn't discount prices. Other retailers in the US have taken note of Wal-Mart's aggressive marketing and have begun to cull prices, too. It's all about competition!
On a recent trip to Belfast in which I stopped off to engage in a modicum of shopping (I am bathed in a warm glow of actually having bought things early in the month this year instead of panicking on December 23rd), I noticed that almost all of the retailers were offering discounts on confectionery and toys. And, despite our free-spending nature this side of the border, we're happy to go bargain hunting too.
My favourite consumer driven enticement is a three-for-two offer or two items at a discount price. I can't actually remember the last time I bought a book that either wasn't discounted or that wasn't part of a three-for-two offer (although this might be because I am a serial book buyer anyhow and feel as though I have been let down if I don't leave the shop with more than one volume under my arm). But those shopping habits have translated into my grocery basket too and suddenly I find the cupboard stacked with a variety of goodies which I end up forgetting about until one day I check the best before date and realise I should have used them a week earlier.
Not that the stores will mind. December is the time when they have the most compliant consumers. With the promise of further rate hikes in the pipeline, they'll be hoping that we'll continue our trend of living for today and letting tomorrow look after itself.
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