Different Types of Inflation

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Inflation means a sustained increase in the general price level. However, this increase in the cost of living can be caused by different factors. The main two types of inflation are :

  • Demand pull inflation – this occurs when the economy grows quickly and starts to ‘overheat’ –aggregate demand (AD) will be increasing faster than aggregate supply (LRAS).
  • Cost push inflation – this occurs when there is a rise in the price of raw materials, higher taxes, etc.

1. Demand Pull Inflation

This occurs when AD increases at a faster rate than AS. Demand pull inflation will typically occur when the economy is growing faster than the long run trend rate of growth. If demand exceeds supply, firms will respond by pushing up prices.

The UK, Spain and France to a latter extent, experienced demand pull inflation during the late 1980s. Fuelled by rising house prices, high consumer confidence and tax cuts, the economy was growing by 5% a year, but this caused supply blockages and firms responded by increasing prices. It was only when the economy went into recession in 1990 and 1992, that we saw a fall in the inflation rate.

2. Cost Push Inflation

This occurs when there is an increase in the cost of production for firms causing aggregate supply to shift to the left. Cost push inflation could be caused by rising energy and commodity prices.

Be an example when in early 2008, the UK economy entered a deep recession (GDP felt 6%). However, at the same time, it experienced a rise in inflation. This inflation was definitely not due to demand side factors; it was due to cost push factors, such as rising oil prices, rising taxes and rising import prices (as a result of depreciation in the Pound). By 2013, cost push factors had mostly disappeared and inflation had fallen back to its target of 2%.

Sometimes cost push inflation is known as the “wrong type of inflation” because this inflation is associated with falling living standards. It is hard for a Central Bank to deal with cost push inflation because they face both inflation and falling output.

3. Wage Push Inflation

Rising wages tend to cause inflation. In effect this is a combination of demand pull and cost push inflation. Rising wages increase cost for firms and so these are passed onto consumers in the form of higher prices. Also rising wages give consumers greater disposable income and therefore cause increased consumption and AD. In the 1970s, trade unions were powerful in the UK and France –as it was in Spain in the 1980s. This helped cause rising nominal wages; this was a significant factor in causing inflation.

4. Imported Inflation.

Depreciation in the exchange rate will make imports more expensive. Therefore, the prices will increase merely due to this exchange rate effect. Depreciation will also make exports more competitive so will increase demand.

5. Temporary Factors.

The inflation rate can also increase due to temporary factors such as increasing indirect taxes. If you increase VAT rate from 16% to 20%, all goods which are VAT applicable will be 4% more expensive. However, this price rise will only last a year. It is not a permanent effect.

Core Inflation

One measure of inflation, is known as ‘core inflation‘. This is the inflation rate that excludes temporary ‘volatile’ factors, such as energy and food prices. The graph below shows inflation in the EU. The headline inflation rate (HICP) is more volatile rising to 4% in 2008, and then falling to -0.5% in 2009. However, the core inflation (HCIP – energy, food, alcohol and tobacco) is more constant.

eu-core-inflation-2001-111This shows that energy prices were very volatile in this period, contributing to cost push inflation in 2008.

Sublime!

The nicest Champions League final in years? No big deal, but some credit has to go to Manchester Utd. Sir Alex’s tactics were wrong. He could have set his side up to try and defend to a penalty shoot-out but instead he tried to make a game of it. That Barcelona won playing not just the usual neat stuff but also some good expansive football and without any usual simulation (that could spot) means they are most worthy. Good match but no surprises then, Barcelona were of course the better team. Man Utd gave a reasonable account of themselves, but with Giggs and Carrick in central midfield there was only going to be one result. Barça made Utd look like somewhat amateurs.

Admirable Wayne Rooney though. Seven minutes after first Barça goal, Barcelona’s defensive flaws were exposed as Rooney combined first with Fábio and then with Giggs before meeting the Welshman’s delicately weighted return pass with a beautifully judged first-time shot which curled away from the diving Valdés. Giggs appeared to be in an offside position, but Xavi, Iniesta and Messi could only stand and admire the confidence with which Rooney created and finished the move.

Messi and Villa’s strikes were magnificent. Rooney’s was magnificent. A game with at least 3 superb goals is never a bad game, win or loss.

United are comfortably the second best team in Europe, Barcelona comfortably the best team in Europe. In fact, you’d have to go back to their game against Arsenal to find the last time they lost in Europe. They’re sublime. Their last two (killer) goals were, for me at least, totally unexpected. I doubt anyone expected Barça to shoot from outside the box, and therein lies the problem with beating them.

Congratulations to my Barça. A truly great side, and worthy of their title.

Garzon, an ‘inconvenient’ judge, now sitting in the dock

It seems that some people do their best to keep the impunity of crime during the Spanish Civil War and the Franco’s dictatorship: the 1977 amnesty law is outdated as it comes into contradiction with the regulatory offence of ‘crimes against humanity’, which is not prescribed under any circumstances – this is one of the principles of universal justice, one of the pillars of universal jurisdiction and a basic principle of comparative law.

The celebrated Spanish magistrate Baltasar Garzon will be judged for trying to dig into the dirty past of Franco’s regime. On receiving complaints by far right-wing organizations, the Spanish Supreme Court has decided to sit the magistrate in the dock for “misfeasance”.

“Aware of his lack of jurisdiction and that the crimes reported lacked penal relevance when the proceedings began, (Garzon) built a contrived argument to justify his control of the proceedings he initiated,” Luciano Varela – an investigating magistrate on the Supreme Court – said in the ruling.

The decision should result in a quick-fix suspension of Baltasar Garzon from the Audiencia Nacional, the Spanish high criminal court in Madrid that centralizes the issues on terrorism, crimes against humanity and organized crime.

Baltasar Garzon, 54, is accused of having set up a “legal subterfuge” to open an investigation regarding the missing persons during the Spanish Civil War (1936-1939) and general Franco’s regime (1939-1975), ignoring a general amnesty law passed in 1977 by the Spanish Parliament, two years after the death of dictator Francisco Franco. Facing the hard opposition from prosecutor Luciano Varela, Garzon had to abandon the investigation in late 2008.

Considering he had “deliberately ignored” the amnesty law that prevented him to take jurisdiction for the investigation, Luciano Varela refused in early February to close a complaint against Judge Garzon. Garzon’s counsel Gonzalo Martínez-Fresneda, when questioned by the online edition of El Pais, said he would appeal judge Varela’s decision.

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A sad day for Justice
“It’s a sad day for justice,” assured Emilio Silva in the Spanish broadcast corporation. He is the spokesman for the Association for the Recovery of Historical Memory, the leading association of families of victims of Franco. “Relatives from 113 000 missing people cannot find a place for justice to be done anywhere in this country,” said Silva. “If this trial takes place, this will be the first known case of a judge who tries to get the truth, justice and reparation for more than 100 000 people disappeared and finds himself pursued,” declared Esteban Beltran the Spain Director for Amnesty International.

More than two hundred organizations defending human rights and jurists all around the world, including former prosecutor of the International Criminal Tribunal for the Former Yugoslavia as for Rwanda, Mrs. Carla del Ponte, recently signed a petition supporting Judge Garzon. They remind that the UN Committee on Human Rights requested Spain in 2008 to revoke the post-Franco amnesty law and “to guarantee the imprescriptibility of crimes against humanity”. “Enforced disappearances” which focused Garzon’s investigation are crimes “that cannot be prescribed or amnestied,” they stated.

Enforced disappearances are among the gravest crimes which cannot be prescribed nor be granted with amnesty without attempting against international law, which is part of the Spanish judicial system.

The crime of illegal detention, without giving information of the detainee’s location, or the crime of enforced disappearances, are crimes of continuous nature, that are ongoing until it is known what happened to the victims; that is why these crimes cannot be object of criminal prescription. When these disappearances have been committed in a systematic, massive and generalized manner, as it occurred during the Civil War and Franco’s dictatorship, they are considered as crimes against humanity and hence cannot be subject of amnesty nor pardon. For this type of crimes, the principle of non-retroactivity in criminal law cannot apply since the prohibition of such crimes already existed under international customary law (jus cogens) at the time of the facts and, the principle of legality, is formed by national provisions and international human rights law.
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An atypical magistrate
As pioneer and advocate of “universal justice”, Judge Garzon had gained worldwide recognition by securing the arrest of former Chilean dictator Augusto Pinochet in London in 1998. This atypical magistrate has cornered the armed Basque separatist organization ETA for more than twenty years.

Accused by Spanish conservatives of harboring grudges and seeking the media limelight with his pursuit of high-profile cases, but also as a result of his investigations, Garzon have brought down wrath, both from the very conservative Spanish Judiciary and from the much corrupted Spanish political class (and not only conservatives). If we add the fact that Spanish judiciary is the only non-democratic power in the country with unchanged structures from the dictatorship, now handled by the extreme right… an explosive cocktail is served.

For your information, Judge Garzon is targeted as well by complaints in two other cases: one for the fees he received for lectures in the United States in 2005-2006, the other for his supposed “partiality” in the investigation he has started on the Gürtel corruption scandal that currently splashes the Spanish right .

The Spanish parliament put an end to universal jurisdiction last October 2009 when it approved a bill that narrows the role of the country’s judges in prosecuting crimes committed in other countries.

Sources: Harvard Law Review, Human Rights Quarterly, FIDH, NY Times, Le Monde, El País

Related Posts:

>> The Spanish Law of Universal Jurisdiction, now in Brackets?

>> International lawyers support the Garzon’s cause against Franco’s regime

>> Who Wants Judge Garzon’s Head on a Platter?

>> No todo el monte es orégano (Spanish)

A 3D Exploration of Picasso’s Guernica by Lena Gieseke ©

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The ‘Guernica’ is a powerful masterpiece, an oil canvas, of very impressive proportions (782 x351 cm), that Pablo R. Picasso made in 1937 for the Paris International Exhibition.
The fabric, black and white, represents the bombing of the town of Gernika on 26 April 1937 by the Nazi German Aviation. The canvas is currently exhibited at the National Museum Centro de Arte Reina Sofía.

Now, a New York artist Lena Gieseke, who is very conversant with modern digital computer graphics techniques, has decided to propose a 3D version of the famous masterwork and hang it on the Internet, in video form. The result is fascinating and gives out visualizing imaginary details that, otherwise, we would have overlooked.

Even though, I am not fully aware what Pablo Picasso would think …

Thanks to my lovely Geneviève who forwarded me the video.She’s always raring to go for new amazing adventures :)

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EU plans microcredit line to tackle youth unemployment

EU plans microcredit line to tackle youth unemployment

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With jobless rates rising, the 27-member bloc is working on a 100-million-euro ($139-million) microloan program to help unemployed young people start their own businesses.

The unemployment rate for those under the age of 25 in the European Union reached 21.4 percent in December, according to statistics released on Friday, January 29, by Eurostat, the EU’s statistics office.

That’s up from 16.9 percent for the same month the year before and more than twice as much as the 9.6 percent unemployment rate across the population of the EU.

Spain, the country currently holding the EU’s rotating presidency, has been particularly hard hit by the global economic crisis. Unemployment for under-25-years-old Spaniards is at 44.5 percent. “There is not a single country in Europe that is not worried about youth unemployment,” said Spanish Employment Minister Celestino Corbacho at a meeting with his counterparts in Barcelona on Friday.

What is to be done?

Corbacho confirmed that the EU was working on a plan to provide microloans to young people.

“One measure the European Commission is working on is that of microloans for young entrepreneurs,” Corbacho said in a release on the Spanish EU presidency’s website. “There may be a chance of an immediate agreement, as quickly as possible.”

The program suggested would involve a fund of 100 million euros for unemployed youth or the long-term unemployed. The microcredit program would target those people who tend to have difficulties getting loans from banks and evaluate potential loan recipients based on social rather than financial criteria, according to the Spanish presidency.

The Spanish presidency will present a final proposal to the European Commission in the coming weeks, according to outgoing Employment Commissioner Vladimir Spidla.

A New Definition of Misery

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A lesson from the history of a new “misery index,” created by Pierre Cailleteau, an economist and sovereign risk analyst at Moody’s.

The unfortunate leader in that misery index is Spain

The international ratings agency has ranked Spain as top of its Misery Index — a metric which adds a country’s fiscal deficit and the unemployment rate — meanwhile UK gets a sixth ranking.

Spain, is followed by Latvia, Lithuania, Ireland, Greece and the UK. The US is eighth — just after Iceland. France, is badly coming back to the mid 70s and 90s funest period.

Czech Republic, Italy and Germany were forecast to be the least miserable.

In fact, Moody’s has compiled a 1970s-style ‘Misery’ index. But instead of showing inflation and unemployment rates, it shows the fiscal deficit and the unemployment rate. The original “misery index”  was invented by the economist Arthur Okun in the 1970’s. Okun had served as a member of President Lyndon Johnson’s Council of Economic Advisers and a professor at Yale. That index came to symbolize stagflation, a significant problem of the 1970s, when consumer prices continued to rise even as economies stagnated and unemployment rose.

And now it makes no sense to talk about inflation as much of the world in which we live is suffering deflation, the new misery index incorporates the public deficit as an indicator of collective misery.

This fact shows that one of the biggest errors of the current economic model over the past thirty years, was taking the dogma of inflation as the central focus of economic policy. Financial circles just looked at the current inflation rate (goods and services), but did not see the creeping inflation of properties and real estate that created the bubble.  Now, high unemployment and high debt levels are putting the economic policy makers faced with the dilemma of an emergency stimulus plan but budgetary realities that cannot afford it.

The day Iniesta shut Cristiano Ronaldo

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In the catechism of good FC Barcelona supporters, the first commandment is to win Madrid, anywhere, even on the bus.

Not my habit to talk about football on this blog. But if it comes to Barça – and especially of a classic derby with Real Madrid – everything changes. « A Barca-Madrid is the top-ten of pleasure », says La Vanguardia. And that’s quite right.
Beyond the sporting merits of Messi and Guardiola and the undeniable quality of Madrid, there is a fundamental difference between the teams. The Catalans are just that: a team and the meringues ‘just’ a sum of individuals (built-through a mass of money).

That Barça is more than a club, we all know. But we must remember, as the former president of FC Barcelona Agustí Montal does in an meaty interview in La Vanguardia, that the club is a fundamental hallmark  all throughout Catalonia and in this globalized world, this team represents, alongside sporting excellence, some way of understanding life getting to unite altogether in the same ideal: Empathy without violence or fanaticism. In front, a proud Madrid, with bright moments, but not much more:

Iniesta vs. Ronaldo, the typology opposes both characters, one silent, hieratic, cautious, almost humble, the other arrogant, spoiled, tough guy, and uploaded in the dollar, as any player had never been shaped.

Iniesta is probably a better player than Ronaldo. Time will tell.