Sir, – I enjoyed reading our former Central Bank governor Patrick Honohan’s article on the outburst of inflation (“An inflationary spiral could do real damage to Irish jobs and incomes”, Opinion, June 11th). There are perhaps just three footnotes I might add.
First, in relation to the composition of inflation more generally, it is accepted that price pressures were building from late last year; this was proven by January’s European Central Bank reading of 5.2 per cent which was roughly split evenly over energy as well as core inflation. That of itself ought to have shaken central bankers from their slumber to act early and decisively by gradually raising rates.
Second, the well-known tenet that lifting rates can cause economic malaise including higher unemployment does not hold here. This is due to the fact that broadly speaking, the EU economy in aggregate recovered well from the pandemic thanks to strong fiscal and monetary supports – so much so that unemployment levels are surprisingly low in several member states, taken in the round
Hence, the view that the ECB must hold off raising rates since economic fundamentals are weak isn’t strictly true.
A lot has changed for US women since 2016. What does that mean for Kamala Harris?
Forty years of the Dart: ‘Dealing with the public is one of the hardest things anyone can do’
Mark Francis: Acoustic Oceans review – A fascinating development in the Irish artist’s decades-spanning career
Fake phone calls, meeting pretend-presidents and being ambushed by your parents on TV: The rituals of All-Ireland week
Finally, on the very valid argument regarding sovereign debt, ie bond yields, this admittedly is tricky and requires finesse. Nevertheless as the main ECB mandate is guarantor of stable and low prices across medium term, it simply must act promptly to head off worsening headline inflation figures. Failing to do so will lead to a de-anchoring of expectations yielding vicious wage spirals across the entire EU and a really hard landing for all member states.
Since markets are unconvinced by the action or is it inaction, I fear we may be in for a hugely disruptive economic standstill caused in no small part by ECB hesitancy in upholding its inflation target effectively.
– Yours, etc,
KEVIN NEWMAN
Brussels,
Belgium.