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Germany’s central bank, by Reuters, says German inflation will remain in double digits despite the gas price brake

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© Reuters. A general view of a pressure gauge at gas trading company VNG AG in Bad Lauchstaedt, Germany, July 28, 2022. REUTERS/Annegret Hilse

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FRANKFURT (Reuters) – Germany’s central bank said on Wednesday that inflation in Germany could remain in double digits next year despite government efforts to rein in energy prices.

With consumer prices in Germany rising 11.6% last month, its fastest pace since the early 1950s, Berlin is trying to curb rising energy bills that reflect an explosion in market prices following Russia’s invasion of Ukraine.

But the German central bank said that the effect of the so-called “brake” on gas prices may not appear immediately, and in any case it will be temporary.

The German central bank said in its monthly report: “The inflation rate may remain in double digits also after the end of the year.”

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She added that the first phase of the government’s plan, which will see gas bills in December, will bring relief to consumers but may not be recorded in the official inflation calculation.

The second, more important part of the plan, in which 80% of gas consumption will be subsidized for homes and small businesses, could remove 1 percentage point from inflation.

But only while it lasts.

“Once the gas and electricity price brakes expire, the impact will be reflected on the inflation rate,” the Bundesbank said.

The Bundesbank, an outspoken supporter of the European Central Bank’s efforts to curb inflation through a steady diet of interest rate increases, has taken comfort in some recent wage deals in Germany’s chemical and metals sectors.

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Workers in those industries agreed to what are likely to be sub-inflationary wage increases in return for one-time compensation payments.

“From a macroeconomic perspective, it is easier to return to lower wage increases when the temporary components expire,” the Bundesbank said.

“This could reduce the extent of second-round effects on the inflation rate, particularly over the medium term, and help ensure that current high inflation rates do not harden further.”

He warned, however, that union demands, such as the 10.5% increase offered to public sector workers, were “exceptionally high”.

The Bundesbank also reiterated its longstanding call for recession in the last quarter of this year and the first quarter of 2023.

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Economic

Pakistan will secure $3 billion in external financing within two weeks

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© Reuters. Pakistan Finance Minister Ishaq Dar speaks during a press conference to announce the economic survey for the fiscal year 2016-2017 in Islamabad, Pakistan, May 25, 2017. REUTERS/Faisal Mahmood

ISLAMABAD (Reuters) – Pakistan will get $3 billion in foreign financing from a friendly country within two weeks, Finance Minister Ishaq Dar said on Friday.

Dar also said all targets for the IMF’s ninth review had been completed, adding that releasing a tranche though would not make sense.

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The dark side of retail therapy

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The cost of living crisis failed to make much of an impact on Black Friday.

Americans have spent a record $9.12 billion searching for deals online, according to the latest estimates. Adobe Analytics. Here in the UK, Barclaycard has recorded over 1,200 transactions per second At the height of the retail frenzy – the largest volume ever processed.

When adjusting for inflation, I expect final totals to be lower than prior years. But apparently the escalating costs are causing many people to double down on discounts and specials in the run-up to the annual splurge known as Christmas.

This week, I learned how the temptation to hunt for bargains can turn into a serious financial problem—shopping addiction.

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On this week’s Money Clinic podcast, I spoke to Brooke, a millennial from North Carolina who’s self-confessed with compulsive spending.

“For me, it’s comparable to drug addiction — when can I get my next fix to walk into a store, buy something and get that dopamine shot,” she told me.

For Brooke, going shopping has become an intoxicating escape from the pressures of modern life and loneliness. Even when she drives to the mall to buy things she knows she doesn’t need, she can feel the problems of the outside world melt away. Central to her mission is the desire to get a good deal (“I wear it like a badge of honor”).

However, by the time Brooke returns to her car loaded with bags of the deeply discounted stuff, the spell is broken. The purchases didn’t make her happier; In fact, she has accumulated over $6,000 in credit card debt.

In some months, she will pay off a large portion of the debt and give her partner custody of the card. But inevitably, her compulsion to spend returns, and soon the card is maxed out again: “Guilt does not outweigh addiction.”

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Many readers may scoff at this problem. Some therapists Brooke has seen in the past don’t take her seriously either, believing willpower and budget is the cure.

But that doesn’t take into account the deeper emotional buttons that get pushed when we indulge in a little “retail therapy.” Whether you’re based in the US, the UK, or elsewhere, at a time when millions are trying to spend and consume less, I think there are lessons here that everyone can relate to.

For starters, it’s hard to buy less when everything around us says it’s okay to buy more and more.

Excessive consumption is normalized in our society. We are conditioned to chasing deals and discount codes and bombarded with digital marketing via social media platforms. First Black Friday, then Cyber ​​Monday, and now early Christmas deals — retailers seem to be going to extremes this year to ensure they have a merry Christmas, even though spending more may be the last thing our finances need.

Combine this with the enabling power of easy credit and buy now, pay later – a sector that is still not properly regulated, however it is expected to be worth $1 trillion (£866 billion) globally By 2030 – and it’s easy to see how people could be tempted to spend more than they should.

In the US, Adobe recorded an 85 percent rise week-over-week in online shoppers using BNPL to distribute checkout payments during “Cyber ​​Week” (the period that includes Black Friday and Cyber ​​Monday).

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The two therapists I interviewed for the podcast were alive with these connections, and emphasized that loneliness, low self-esteem, and poor mental health also contribute to compulsive shopping disorders.

“Addiction is a way of managing emotions, a way of self-soothing that has become its own problem,” explains Pamela Roberts, a psychologist working with Priory Hospital in Woking, Surrey. “Is this really about the shopping, or is there something emotional going on that you’re not processing?”

She agrees that many people view shopping as not a “true addiction” even though the psychological damage is comparable to other behavioral addictions such as Gambling problemNot to mention the damage to people’s money as debt mounts.

However, the feelings of secrecy and shame that surround this can make it very difficult for people to seek help when they have a problem. Although women are more likely to do so, she says shopping addiction is a problem for men, too.

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Amanda Clayman, a Los Angeles-based financial therapist, talked to me about how the compulsive behavior is “like someone clicking on a program in our brain, and it gets triggered.” In her work with addicts, she uses CBT (cognitive behavioral therapy) to help people “find the off ramp” before they join the retail highway.

When stress levels rise and the urge to shop increases, she encourages her patients to “surf the craving.”

“Pause for five minutes and see how you feel; practice enduring that feeling, especially how it will peak and begin to ebb. It’s not a moment that lasts forever.”

Roberts encourages people who think they might be in trouble to ask what it is on a deeper emotional level that makes shopping so intoxicating. “How can we change the money script? So I’m thinking about shopping. Is there another way? Can I call someone?” She notes the rise of 12-step fellowship programs dedicated to shopping addiction.

Undoubtedly, this is a serious psychological problem for some people, but the high cost of daily living means that the traditional “text” of Christmas shopping is also something that urgently needs to be restarted.

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Perhaps you are trying to spend less or do things differently this year. Even if your financial storm gets over you, your friends and family members may already be worried about their ability to reciprocate your generosity.

So, get the conversation out in the open, and ease the pressure by making a mutual agreement to avoid expensive gifting. This will undoubtedly relieve those whose financial resources are already empty.

For a different way to show you care, take a look at “Christmas gift checks.”on the Money Saving Expert website. Print the free PDF (or if you’re artistic, design your own) and pledge something of great value that still costs nothing. This could be babysitting, helping with various chores around the house, or any acts of kindness. Others you know will be appreciated.

Just as compulsive spending is not a cure for the feelings of loneliness and low self-worth often experienced by those with a shopping addiction, gifts are not a substitute for your presence.

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Spending time together, rather than spending money, is what we’ll remember long after all the glitter and gift wrap has been removed.

Claire Barrett is Consumer Editor of the Financial Times and author of What They Don’t Teach You About Money. claer.barrett@ft.com; Twitter and Instagram: @tweet



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As the Fed plans to “raise and hold,” new projections may show the cost by Reuters

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© Reuters. FILE PHOTO: An eagle graces the facade of the US Federal Reserve Building in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo

Written by Howard Schneider

WASHINGTON (Reuters) – The U.S. Federal Reserve’s new forecasts, released later this month, along with an expected half-point rate hike, may show that the central bank’s target interest rate is heading toward levels last seen on the eve of the 2007 financial crisis. It will also reveal policymakers’ best guess about the implications of a flexible labor market so far.

A stronger-than-expected US employment report for November showed businesses added 263,000 workers, with hourly wages rising at an annualized rate of 5.1% and the size of the workforce itself shrinking – all signs of a labor market that is both tight and accelerating. The Fed hopes it will start to cool off.

Combined with only a modest drop in inflation so far, new projections from the Fed’s 19 policymakers are likely to show rates continuing to rise and to remain high through 2023, contradicting current market expectations for a rate cut by the end of next year.

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“The Fed has told us that it will take a prolonged period of restrictive policy to raise unemployment and lower wage growth, and today’s data provides further evidence of that effect,” Jefferies economist Thomas Simmons wrote. “This does not take the Fed off course for a widely expected rate hike of 50 (bps) at the next meeting…and gives us greater confidence in our projection that the final rate will exceed 5% next year.”

The last time interest rates were above 5% was from June 2006 to July 2007, at the start of the 2007-to-2009 financial crisis and recession, when the federal funds rate peaked at around 5.25%.

The updated forecast released after the FOMC meeting on December 13-14 will be a fresh opportunity for officials to show how they expect their “hold and hold” strategy to play out in relation to the final policy rate level. Growth, inflation and unemployment have advanced in particular.

The meeting will culminate in a volatile year that has seen the central bank respond to the fastest spread of inflation since the 1980s with the fastest increase in interest rates since then to offset it. The backlash has sent shock waves through the financial system that at one point wiped nearly $12 trillion off the value of the US stock market and recently pushed mortgage rates to 7% for a population accustomed to cheap money.

Stock markets recently rallied and rallied sharply this week when Fed Chair Jerome Powell said, in what was likely his last public statement before the meeting, that the Fed was prepared to slow down from a series of four consecutive rate hikes by three-quarters of a point in its favour. than expected increase by half a point.

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It would have been an inappropriate outcome for the Fed chief who wants to keep financial conditions tight and keep public expectations firmly focused on the inflation battle.

But Powell has also been vocal about the trade-off. Even if the central bank starts moving at half a point or a quarter point in the coming months, the interest rate is heading higher toward an unspecified “appropriately constrained” stopping point, and officials intend to leave it there “for some time.”

Fed officials from San Francisco Fed President Mary Daley to Bank of St. Louis President James Bullard, who are often on opposite sides of recent policy debates, have discussed interest rates that could rise above 5% next year.

Bloating ‘too loud’

In a lengthy talk at the Brookings Institution this week, Powell outlined what could be a long transition for the United States to a world of slowly declining inflation, high interest rates, and a potentially chronic shortage of workers.

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To slow the pace of price increases, he said, it was clear that energy had to be drained from a labor market where the demand for workers remains far greater than the number of people willing to take jobs — an imbalance in US demographics and immigration policy, magnified by the pandemic.

Embedded in the new economic outlook summary will be estimates of the extent of losses Fed officials feel will be paid in terms of rising unemployment and slowing growth as its policies begin to take their toll.

Powell said he still sees a “reasonable” path to a “soft” landing, with only modest job losses.

But the adjustment is not coming quickly yet.

Data released Thursday showed the Fed’s preferred measure of inflation was 6% in October, down from September’s 6.3% rate, the lowest this year but still three times the Fed’s target of 2%.

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Employment data released on Friday showed little evidence of change there, too.

The economy has been adding an average of 392,000 jobs per month this year. Although the pace eased to 277,000 from August through November, this is still higher than the 183,000 monthly additions in the decade prior to the pandemic.

Expectations are far from reality

The Fed’s forecasts during the year raced to catch up with reality. As of last December, officials expected the interest rate to end in 2022 at just 0.9%, with the preferred measure of inflation falling to 2.6%. The highest expectation for individual federal funds was just 1.1%.

This was less than fourfold: with the expected half-point increase at the next meeting, the general policy rate would end up in a range of 4.25% to 4.5%.

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Powell this week acknowledged the difficulty of predicting in an environment still reeling from the pandemic and its aftereffects.

But there is also little choice as the central bank ends its reckless push to raise interest rates “in front” with a larger rate hike and begins, as Powell described it, to “feel” the way to a stopping point.

As of September, the Fed narrative still includes a benign outcome of continued growth, a steady progression in inflation, and a rise in the unemployment rate less than a percentage point, to 4.4% at the end of next year from the current 3.7% — what some have referred to as “inflation.” Taher” comes at a small cost to the real economy.

It saw the federal funds rate finish 2023 at 4.6%.

It should be “somewhat higher,” Powell said, and the November jobs data may push it another notch. Upcoming projections will show that the final destination may be on the way to supply, and give a better assessment of whether the labor market is able to outpace it.

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Jason Furman, former White House Council of Economic Advisers chairman, wrote on Twitter that the average earnings data from November, along with revisions for prior months, “consist with about 5% inflation.” “I was letting myself have more hope for a soft landing, but that has pretty much dashed that hope.”

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