Friday business news review

Understanding Ireland's Rising Inflation and Volatile Energy Markets Breakfast Business with Joe Lynam on News Talk. Speaker 2 With Cantor Fitzgerald Ireland helping people across Ireland invest, plan and grow their wealth with confidence. Cantor Fitzgerald Ireland is regulated by the Central Bank of Ireland. Speaker 3 Good morning and welcome to Breakfast Business and thank you to Shane Beatty. It is Friday the 11th of September at 6:30. Coming up on today's show, we'll be talking about how we've been spending our money over the past few months and we'll be looking at whether fashion is wasteful and over valued and all the markets as usual, including a lot of red numbers on the global economic dashboard. You can e-mail U.S. business at newstalk.com. But first, let's have a look at those main business stories in the papers and websites in the unmatched and unrivalled company of Kate English, the chief economist with Deloitte. Good morning, Kate. Speaker 1 Good morning. Speaker 3 A lot of red on the dashboard. As I said, let's start with inflation in this country. It is not moving in the right direction. It is 3.7%. It looks to me as if it's bedding down, as in it's not going, you know that back towards 2%. Speaker 1 Yeah. So slight upward movement in our latest inflation rate, that's inflation for August brings us up to 3.7%. That's back to where we were in March of this year. And as you said, is moving in the wrong direction, in particular in the month of August alone. So if we put kind of that 3.7% is the annual increase, put that to the side and the month of August alone is 0.7% increase in, in uh prices, which is quite substantial in one month. The strongest increases over that month were coming particularly from transport and clothing. But really the big story here is that energy driver, it's up 11.7% annually. And of course, when we look at markets where they are today, what has happened post August, you would think that that 3.7% is going to rise higher again come next month and as we head into the winter period as well. Speaker 3 In terms of, I mean, people will, will, will obviously think about putting fuel in their car, but also heating their homes for home heating oil, all that kind of stuff. I'm guessing by what you're saying is they should do so sooner rather than later because prices are only going to go north, especially with oil at $109 a barrel. Speaker 1 Yeah. We've seen incredible moves in the oil market this week and also in European gas prices too, which remember for here in Ireland are very, very important. European gas prices are now above at their highest level they've been at any stage this year. They're close to levels that we last saw at the end of 2022. Now still nowhere near what we saw during the peak of the crisis in 2022, but they've still have seen exceptional moves upwards. And similarly, as you said, oil prices at $109 a barrel, they peaked at about 126 back in April of this year. So not quite back to their highest peak during this current crisis, but certainly the, the trend line is moving upwards. And I think the big concern here is, well, what is that outlook for the winter period? You know, we saw a higher prices earlier in the year at a time when typically we used less energy, um, because we're, and home heating oil, because wet weather is better. We had a very hot summer here during, during in Ireland as well. But as we move into winter, we know that gas reserves, for example, in Europe, we're sitting much lower than where they typically are at this time of year, about 65%. Normally we'd be up over 85%. So we're heading into winter with lower reserves. Speaker 3 Top up your gas reserves around now so that they're ready for. Speaker 1 November earlier, we usually see gas reserves being filled kind of from the end of the spring period through the summer so that we are ready for winter. We are entering now into winter with lower levels of gas reserves across Europe, but those prices already higher. So that's going to put a lot of pressure I think on our energy markets. Similarly with oil, we've seen a lot of global oil reserves were tapped into earlier in the year when the conflict in in the Gulf region originally began. It settled obviously somewhat throughout the summer period and we would have seen oil prices come back now with that develop those developments in the last number of weeks, we've seen oil prices rise once again. But a question mark over well, how much more is there within those reserve tanks now? It's not a doomsday scenario. There are nowhere near their red line or bottom line, but they're certainly in a slightly weaker position today than what they would have been back in March or April. Speaker 3 Yeah. And overnight, of course, we learned that the East West Gas, sorry, oil pipeline in Saudi Arabia, which was supposed to bypass the Strait of Hormuz, has been attacked. And there's been a few explosions, which won't help things. And the cost of renting an oil tanker is starting. Speaker 1 To soar has started to surge soar. So there's a couple of different indicators. You know, when we look across inflation as a whole, obviously energy markets are what they're getting the most attention at the moment. You and I have spoken previously about food prices as we head into 227. They still haven't a period yet. But other ones are container freight indices and also all the price of oil tankers as well has surged significantly around the world as Saudi Arabia as we've seen has started to move kind of crude car goes out of their region and through the North Sea and from Egypt's Mediterranean ports. And I suppose some of these are kind of longer workarounds to avoid some of the conflict that are in other waterways. And when we see cargo ships out for longer periods, it means they are in use for a longer period and that recycling that we see within tankers takes longer. So it means we have a lower level of supply available at anyone time and it's putting significant pressure on that market and. Speaker 3 They're just sitting around and not delivering their cargo and all that stuff. ECB's Rate Hike, Quantitative Tightening, and Eurozone Growth Outlook Uh, the other huge economic story yesterday was, of course, the decision about the European Central Bank, as we expected to raise interest rates. Now I sat through some of the press. Speaker 1 You didn't watch it all. Speaker 3 I didn't watch it all my, my eyelids struggled, um, with Christine Lagarde, she was great of course, but sometimes it gets very pointy headed. Um, I wanted to know about whether the European Central Bank is going to stop its quantitative tightening. We all are familiar with quantitative easing where you kind of print money, but quantitative tightening is when you take that money back out of the system to regularise the system. I wonder whether this economic shock that we are currently going through might lead to a rethink on quantitative tightening. Speaker 1 Yeah. So I was glued to yesterday's press conference as I always had the highlight of my week. And as you rightly said, we saw that rate hike by 25 basis points. You know, Christine Lagarde herself in that press conference said it was a number brainer. The question is now, where do they go next? Markets are expecting even at this early point, further interest rates hikes as we move towards the end of this year and into next year. But I'm trying to hear, I think that's really hard to call right now. Christine Lagarde herself gave very little away in terms of their future path and yesterday's questioning as she always does. They say they're going to be data dependent, you know, make decision meeting by meeting approach. But I think all data indicators are pointing towards further increases in inflation and they're very steadfast on reaching that 2% on quantitative tightening. Yes, they have been in that process really now for the last 2 1/2 years or so. And the Ec's balance sheet would have peaked at just over eight, 8.8 billion at the end of June 2022. Since then, they've been trying to pair that back. It decreased to about 6.1 billion at the end of 2025 and they are indeed continuing that process even into today. There was very little speak about it actually during the press conference, but it was confirmed in their press statements that they would have released before that. The other interesting angle, however, was, uh, there was questioning around, well, where is the neutral rate? You know we speak about the neutral rate as when they deem that interest rates are no are are not tightening I suppose the financial markets or expanding them at 2.5% that is the upper range of that neutral rate. So if they are to increase further, well does that signal they are looking? Speaker 3 Actively. Speaker 1 Tightening actively tight means. Speaker 3 They want to take money out of the economy. Speaker 1 Yeah, out of the economy. No, they did say as well that they were actually quite surprised by the overall level of growth within the euro area. And indeed, their staff projections yesterday slightly increased euro area GDP growth for this year. Speaker 3 Distorted, of course, by Irish. Speaker 1 GDP, ohh, yes, but they were still mentioning that they're seeing quite resilient volumes of overall consumer spending and labour markets to a degree that they hadn't initially expected at the the the start of the the rise in inflation once again, that was 1 positive. Speaker 3 Yeah. Do they, I wonder, do they take G Irish GDP into account or do they look at our modified domestic demand because you know, we had a big jump in Q2 and a big fall in Q1, which completely knocks out the whole data for the Eurozone. Speaker 1 Yeah, they take GDP, Irish GDP into account when they're looking specifically at your area GDP numbers and when they're forecasting as well. However, they also will be looking at Irish GNI star data as well. When you often read the commentary around the release of Euro area data, Ireland is specific getting. Wrapping Up the Business News and Weekend Plans Very directly headed now on Friday morning for a lot of people. Kate, thank you so much and enjoy your weekend. I know you're nipping down to Tipperary again to see your family, so listen. That's Kate English, chief economist with the. Speaker 1 Breakfast Business with Joe Eminem on News Talk. Speaker 2 With counterfeits Gerald Ireland helping people across Ireland invest, plan and grow their wealth with confidence. Cantor Fitzgerald Ireland is regulated by the Central Bank of Ireland.