Jump to content
House Price Crash Forum
Sign in to follow this  
Realistbear

German Producer Prices Shed A Whopping 6.9 Pct In August

Recommended Posts

http://uk.biz.yahoo.com/18092009/323/germa...ugust-data.html

Friday September 18, 08:09 AM

German producer prices shed 6.9 pct in August: data

FRANKFURT (AFP) - The cost of goods at the factory gate in Germany posted its second record drop running in August after energy costs fell from highs a year earlier, fereral data showed on Friday.

Producer prices shed 6.9 percent on a 12-month basis to reach the same level as September 2007, the Destatis federal statistics office said. This was less than the 7.2 percent drop forecast by analysts polled by Dow Jones Newswires.

In July, producer prices in Germany, Europe's biggest economy, had already shed 6.6 percent -- their steepest drop since records began in 1949.

That is a very big number indeed. If Europe's largest economy is deflating at this rate can the rest of the Eurozone be far behind? The vaccum being generated by the $9.4TR bubble being burst may* yet turn into record breaking deflation--even beyond the record set in 1949.

"Deflation, a HPCers very best friend."

_______________________

* "May" as in not 100%, guaranteed but more likeley than not on present data.

Share this post


Link to post
Share on other sites

For those not used to RB's posts, can I point out that this 6.9% drop is YoY, not MoM, and it is the greatest falls since records began in 1949, not since they last had deflation.

It is still a very big drop. I know the Germans have a morbid fear of inflation, but this is the sort of data that can swing concerns the other way.

I would be more interested in default rates in Germany though.

Share this post


Link to post
Share on other sites

I don't see the big problem with a little bit of deflation. In the last two years inflation in the Euro Zone was running above target. A bit of defaltion will bring it back to where it was hoped it would have been. Also, these price decreases will not last long, they are simply the massive energy price hikes during last year dropping out of the stats.

They are a long long way away from a "deflation death spiral" The one thing it probably means is that German companies are getting even more competitive and the Euro will not stand in their way.

Share this post


Link to post
Share on other sites
They are becoming ever more competitive these Germans. I would be worried if I were on a fixed currency regime with them. At least we can impoverish ourselves comfortably.

Couldn't agree more HAM, check this out

Share this post


Link to post
Share on other sites
I don't see the big problem with a little bit of deflation. In the last two years inflation in the Euro Zone was running above target. A bit of defaltion will bring it back to where it was hoped it would have been. Also, these price decreases will not last long, they are simply the massive energy price hikes during last year dropping out of the stats.

They are a long long way away from a "deflation death spiral" The one thing it probably means is that German companies are getting even more competitive and the Euro will not stand in their way.

deflation is only the enemy of bankers.

their assets are ALL measured in money.

Now that sounds great, the value of their money is going up....BUT, their assets are all based on debt....so the people paying the cost of the bankers profits are getting poorer...in reality....then, realising this, people dont borrow so much.

and for the other side of the equation, savers get a free increase....so the bankers have LESS wealth as their LIABILITIES are rising in real terms.

for the prudent, deflation is excellent news. for the feckless, its bad.

Lucky for us, we've had 15 years of Mr Prudent Brown with his Golden Rules at the helm for the UK.

Share this post


Link to post
Share on other sites
deflation is only the enemy of bankers.

their assets are ALL measured in money.

Now that sounds great, the value of their money is going up....BUT, their assets are all based on debt....so the people paying the cost of the bankers profits are getting poorer...in reality....then, realising this, people dont borrow so much.

and for the other side of the equation, savers get a free increase....so the bankers have LESS wealth as their LIABILITIES are rising in real terms.

for the prudent, deflation is excellent news. for the feckless, its bad.

Lucky for us, we've had 15 years of Mr Prudent Brown with his Golden Rules at the helm for the UK.

Yes it's bad news for everyone with debt. Thank god we don't have a debt based wealth creation system.

Share this post


Link to post
Share on other sites
I don't see the big problem with a little bit of deflation. In the last two years inflation in the Euro Zone was running above target. A bit of defaltion will bring it back to where it was hoped it would have been. Also, these price decreases will not last long, they are simply the massive energy price hikes during last year dropping out of the stats.

They are a long long way away from a "deflation death spiral" The one thing it probably means is that German companies are getting even more competitive and the Euro will not stand in their way.

Maybe, but it worse news for economies like Spain and Ireland. They have to devalue to become competitive again, but because they now can't devalue their currency they have to to drop their actual nominal prices instead. And they have to drop them faster than Germany to remain competitive. If German is 7% cheaper then they have to produce goods at say 15% cheaper.

In the recent report on Spain, The Hole In Europe’s Balance Sheet | the conclusion was that Spain need to deflate prices by 30% to become competitive again verus the rest of Europe, and hence regain full(ish) employment. So I guess now that's 37%! Ouch! That really is a deflationary death spiral!

Cheaper prices sounds attractive, and it it weren't for militant unions you could just pay people less, and regain full employment that way.

However as mentained above, by the fiat money system with fractional reserve banking simply doesn work well in a deflationary evironment. Like a fish trying to swim on land. You cannot loan an amount of money and expect to get less back (because wages are going down and down). If you do make loans the lender is likely to make a whopping loss - as the borrower is unlikely to have enough money to pay off the loan. And if if was secured on the house, the house is now worth less, and the bank loses money that way. So banks make losses, pull in more loans, and these borrowers and business have no choice but to default as we have seen. Employees are fired and soon you start to see 25% unemployment, which isn't good for anyone - even the prudent savers.

Global economy derailed, train wreck ensues

train_wreck.jpg Messy!

So I can see why Mervyn King is so busy printing money! Bailing out the feckless is sometimes the least worst option. (It pees me off too!)

Share this post


Link to post
Share on other sites
Maybe, but it worse news for economies like Spain and Ireland. They have to devalue to become competitive again, but because they now can't devalue their currency they have to to drop their actual nominal prices instead. And they have to drop them faster than Germany to remain competitive. If German is 7% cheaper then they have to produce goods at say 15% cheaper.

In the recent report on Spain, The Hole In Europe’s Balance Sheet | the conclusion was that Spain need to deflate prices by 30% to become competitive again verus the rest of Europe, and hence regain full(ish) employment. So I guess now that's 37%! Ouch! That really is a deflationary death spiral!

Cheaper prices sounds attractive, and it it weren't for militant unions you could just pay people less, and regain full employment that way.

However as mentained above, by the fiat money system with fractional reserve banking simply doesn work well in a deflationary evironment. Like a fish trying to swim on land. You cannot loan an amount of money and expect to get less back (because wages are going down and down). If you do make loans the lender is likely to make a whopping loss - as the borrower is unlikely to have enough money to pay off the loan. And if if was secured on the house, the house is now worth less, and the bank loses money that way. So banks make losses, pull in more loans, and these borrowers and business have no choice but to default as we have seen. Employees are fired and soon you start to see 25% unemployment, which isn't good for anyone - even the prudent savers.

Global economy derailed, train wreck ensues

train_wreck.jpg Messy!

So I can see why Mervyn King is so busy printing money! Bailing out the feckless is sometimes the least worst option. (It pees me off too!)

I see what you are saying, but inflation only helps if you get wage inflation, even if you are a debtor and not a saver. Wage inflation seems to have stalled, and if price inflation carries on, we will get a very nasty mix.

As far as Spain and Ireland are concerned, they may just have to get more efficient. Germany is not a low cost country, but their manufacturers are leaders in using state of the art manufacturing technologies to keep their costs down.

Share this post


Link to post
Share on other sites
Global economy derailed, train wreck ensues

Train crash in Germany about 9 months ago, which apparently badly damaged 18 Porsches.

porsche-train-crash-destroyed-01-MBQF-10764396,templateId=renderScaled,property=Bild,height=225.jpg

Messy and expensive. Or maybe becoming less expensive if Porsches are to get cheaper with German deflation. :)

http://www.bild.de/BILD/news/bild-english/...rsche-cars.html

Share this post


Link to post
Share on other sites
As far as Spain and Ireland are concerned, they may just have to get more efficient.
Indeed, but making things more efficient means you are able to sell the finished product for less. This is how you get more business, and can start to employ more people again.

The other way to cut the cost of your product is to simply ... cut your employee's wages. (As prices are going down too, they can still buy the same amount of stuff with less, so they shouldn't care right?). As there is huge pool of spare labour, you can just cut wages, increase competitiveness, expand your businsess and employ more people. More and more people are employed will diminish the pool of labour, then if you try to cut wages more, you won't be able to hire anyone.

So we've just solved both the unemployment and competitiveness problems in one easy step :)

Unfortunately in Spain's case this involves a circa 30% cut in wages/prices. And that would decimate the Spanish banking system.

NB There was big thing in the Great Depression where employers were encourage to keep wages high and not cut. Cutting wages was seen as unpatriotic. This is one reason why unemployment levels stayed so high for so long.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   292 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.