We need to look convincing-Deflation is a mindset as well

The Bank of Japan must try harder to convince the public it can spur faster price increases, a Japanese central banker said in a speech that acknowledged it could be some time before the institution achieves its inflation goal.

Sayuri Shirai

"The Bank needs to increase its dialogue with the public to promote understanding of the importance of the 2 percent target," Sayuri Shirai, a member of the Bank of Japan's policy board, said at a monetary policy conference on Friday.

Japan is engaged in a monumental campaign to revitalize an economy plagued by years of stagnant growth and falling prices. The Japanese central bank is playing a pivotal role in the effort, engaging in massive money printing in a bid to reverse the nation's deflationary mindset.

Shirai said it could take some time to get inflation to 2 percent. "It is possible that it may take even longer to achieve a situation where the 2 percent target is maintained in a stable manner," she said.

She said there have been some signs that the public is adopting higher expectations for inflation, which would be a major accomplishment for the central bank, but that some of the increase was due to the impact of a looming tax hike.

This means the Bank of Japan has work to do to convince the public that it will spur higher inflation.

"Maybe some people still have some doubt about our commitment," Shirai said during a panel discussion following her remarks.

We shouldn't turn off the Fed's taps for another 2 to 3 years

 Turbulence on Wall Street will likely return when the Federal Reserve decides to hike interest rates, top U.S. economists said in a paper that warned the Fed's huge stimulus program could have harmful consequences.

The paper, released on Friday, focused on a financial market selloff in mid-2013 after Fed officials said they planned to trim monthly bond-buying.

The authors found mutual fund investors participated heavily in the selloff even though their market bets weren't made with a lot of borrowed money.

This is important because policymakers sometimes weigh the chances of a financial crash by looking at the size of leveraged bets, which can be prone to swift reversals. The research highlights a perhaps under-appreciated risk for the Fed's plans to wind down its easy-money stimulus.

Minneapolis Fed President Narayana Kocherlakota.

"Whenever the decision to tighten policy is made, then the instability seen in summer of 2013 is likely to reappear," wrote JPMorgan chief U.S. economist Michael Feroli, University of Chicago professor Anil Kashyap and two other well-respected economists.

Several Fed officials were present at the high-profile economics conference where the paper was presented, and two said the paper raised real concerns.

That said, the ideas highlighted by the paper already play into the Fed's current monitoring of financial risks, said Minneapolis Fed President Narayana Kocherlakota.

Kocherlakota, who is a voting member on the Fed's rate-setting policy committee this year, has argued forcefully for monetary stimulus and said the U.S. economy remains so weak that the Fed still has another "two to three years" to mull financial stability risks.

Deflation in Europe isn't happening -Consumer spending is up

Consumer prices grew 0.8% in February from a year earlier in the euro zone, the European Union's statistics office Eurostat said Friday, well below the ECB's target of just below 2%. But that was higher than expected, with the consensus forecast of 24 economists surveyed by The Wall Street Journal last week for a reading of 0.7%.

"February's euro-zone consumer prices figures don't change the picture of very weak price pressures in the currency union and hence don't rule out further policy action from the ECB next week," said Jonathan Loynes, chief European economist at Capital Economics.

Those policy makers who are reluctant to provide further stimulus may also be encouraged by figures released by Germany's statistics agency Friday, which showed retail sales in the euro zone's largest member rose at the fastest pace since February 2007, jumping 2.5% from the previous month.

ECB policy makers have repeatedly said they don't expect outright declines in consumer prices, known as deflation. They reject comparisons with Japan, which struggled with deflation for two decades, saying the ECB has acted more decisively than Japan did in the 1990s and that European banks are stronger.

An extended period of falling prices would be highly damaging for the euro zone, as governments and households are already struggling to reduce their elevated levels of debt. When prices fall, the effective debt burden rises.

Greece bond yield fall as ECB Monetary stimulus in the pipeline

European government bonds rose this week as speculation the European Central Bank will expand monetary stimulus combined with optimism that the region is exiting its sovereign crisis to boost demand for its assets.

Greece’s 10-year yields fell yesterday to the lowest since the nation received its first financial bailout in May 2010.

Greek 10-year (GGGB10YR) yields fell 67 basis points, or 0.67 percentage point, this week to 6.96 percent at 5 p.m. London time yesterday, after declining to as low as 6.76 percent. The 2 percent bond due in February 2024 rose 3.905, or 39.05 euros per 1,000-euro ($1,381) face amount, to 73.85.

The rate climbed to a record 44.2 percent in March 2012.

 Portugal’s bonds rose as the country bought back debt.

Portugal’s 10-year bond yield slid eight basis points to 4.85 percent, the biggest weekly drop since the period ended Jan. 31. The rate fell to 4.78 percent on Feb. 27, the least since June 2010.


Benchmark German 10-year (GDBR10) bunds pared gains yesterday .Germany’s 10-year bund yield dropped four basis points in the week to 1.62 percent, after falling to 1.55 percent on Feb. 27, the lowest since July 24.

 ECB policy makers are scheduled to meet on March 6.

Inflation unchanged- so looks like no ECB rate cut

Inflation is expected to be unchanged at 0.8pc this month, easing the pressure on European Central Bank boss Mario Draghi to take further action.

Economists had expected the rate to dip below 0.7pc, but the fact that it remains stable means it is less likely the ECB will reduce its main interest rate further when it meets next week.

It comes as the unemployment rate in the eurozone also remained stuck at 12pc in January.
Mr Draghi has warned of the risk of inflation getting stuck in a danger zone below 1pc, but said again on Thursday that there was clearly no deflation.

The February inflation rate was stable because lower energy costs were offset by more expensive industrial goods and services, according to Eurostat data.

Irish Property-Dublin Rises up as the rest keep falling.

The outlook for property prices in Ireland is starting to improve three new surveys show – with Dublin leading the way.

One survey, from property website Daft.ie says Dublin property prices in Dublin rose 5.3% year-on-year with prices in the south now up by 12% in the first six months of the year.

Meanwhile, the latest figures from the Central Statistics Office (CSO) show prices have fallen 1.1% in the last year across the country but have risen in Dublin by 1.3%.

Dublin City

Another report from website MyHome.ie says asking prices in Dublin have risen for the first time since 2007, up 1% on a year ago.

Economist Ronan Lyons, of Daft, says the Dublin market is surging ahead of the rest of the country.

“This is certainly the first time such rapid growth in asking prices has been recorded anywhere in the country for almost six years. The underlying cause is a lack of supply in the capital, while demand has steadily been rising.”

Compare the latest figures with the decline of 15.3% in the 12 months to May 2012 reported by the CSO and it is plain to see how much the market has improved. The increase follows a larger 0.8% rise in April.

In Dublin, residential property prices grew 0.5% in May. House prices grew 0.5%, up 1.3% higher compared to a year earlier and apartment prices in the city were 1.2% lower on May 2012. The apartment figures are based on low volumes and so are open to greater volatility.

The price of residential properties in the rest of Ireland grew by 0.1% in May, the same rate as May last year. Prices were 2.8% lower than in May 2012.

House prices still have a long way to go to reach the highs of 2007 and Dublin prices are 55% lower than at their peak.

The fall in the price of residential properties in the Rest of Ireland is 48%. Overall, the national index is 50% lower than its highest level in 2007.

The figures from Daft show the fastest price rise since the first three months of 2007, just before the property market crashed.

Although prices outside Dublin are falling – 9% lower than this time last year – the rate of decline has slowed sharply from an average of 15% in 2012.

The average property price is €193,000 and the supply of properties for sale is now at its lowest level since the middle of 2007.

Car Sales Boost Irish Retail Sales

New figures from the Central Statistics Office show a rise in the volume of retail sales in January, on the back of strong car sales.

The CSO said that the volume of retail sales rose by 2.3% in January compared to December with car sales growing by 6.3%. On an annual basis, retail sales rose by 8.9% - the biggest yearly rise since May 2005.

But when motor trades are excluded, the volume of retail sales fell by 1% in January from December, while there was an increase of 2.7% in the annual figures. 

Among the other sectors recording an increase in sales was the furniture and lighting sector, with sales there up 0.8%, while other retail sales rose 1.5%.

But sales in department stores fell by 4.6%, while pharmaceuticals, medical and cosmetic sales were down 4.1% and books, newspapers and stationary decreased by 3.7%.

The CSO said that the value of retail sales rose by 1.8% in January compared to the previous month, while there was an annual increase of 6.9% when compared with January 2013.

When car sales are excluded, the CSO said there was a monthly fall of 0.3% in the value of retail sales and an annual increase of 0.9%.

"Although there is still a general air of caution among consumers, there does seem to be a view that the worst is over," according to economist Alan McQuaid of Merrion Stockbrokers.

"A key issue going forward will be the state of the labour market, and the signs are encouraging on this front as we’ve seen with the most recent official employment data and the Live Register in recent months."

However, Mr McQuaid cautioned that the continued decline in disposable incomes as well as an increasing tax bill could weigh negatively on consumer spending in the coming months.

Conall Mac Coille of Davy echoed this sentiment and said that, car sales aside, much of the annual increase could be attributed to a reduction in saving.

However he said Davy anticipated a 1.5% increase in consumer spending this year, with exceptionally strong labour market data and spending on car sales potentially pushing that higher.