<![CDATA[King's EcBSt news blog]]>

<![CDATA[King's EcBSt news blog]]>(c) it's learning 1999-2008http://www.itslearning.com/kingschester/sdw/blog/en-GB28/08/2008 09:18:44<![CDATA[Happy birthday euro ...]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=34

It's a birthday party that might go un-noticed, so let's all say 'Happy Birthday' to the euro. Actually it isn't its birthday, more its conception day. This month marks the tenth anniversary of the decision to launch Europe's single currency. Its tenth birthday, the date the currency came into existence (though before any notes and coins were issued) is 1 January 2009. Oh, to have more than one birthday ...

But has it been a success? Hamish McRae, writing in today's Independent, gives a qualified thumbs up. He points out that the euro is now an internationally respected currency, with a good track record in keeping the lid on inflation. The European Central Bank hasn't been as successful as the Bank of England in controlling inflation, but it beats the US Federal Reserve hands down. Trade between euroarea economies has increased, as economic theory would predict but not as much as might have been expected.

The real test for the euro lies in the years ahead. Can the ECB bear down on inflation in an era of rising prices and will the strains begin to show as interest rates rise? As the contributors to Ink. are fond of saying, 'time will tell'.

Useful weblinks

Hamish McRae's article in the Independent

The European Commission's 'Euro@10' website

Questions for Year 10 students (fourth form)

Which countries were the first to adopt the euro?

When were euro notes and coins first introduced?

How many EU countries now use the euro?

What are transaction costs?

Prize (to be determined) for the first set of correct answers. Either email SDW at stephenwalton@kingschester.co.uk or submit your answers as a comment in my blog.

]]>2008-06-19 22:06:564X610X34<![CDATA[Inflation watch (again ...)]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=33

It is a sign of the times that this blog is becoming dominated by news on the inflation front. Sitting on my bookshelf is a book by Roger Bootle (former Chief Economist at HSBC and lecturer in ecnomics at Oxford University) published in 1996 entitled 'The Death of Inflation'. The flycover reads:

"The western world is in the grip of overwhelming forces which are transforming the economic and business landscape and the lives of ordinary people. We are witnessing the death of perpetual inflation and the beginning of the zero era."

It is tempting to conclude that you should never trust economists who gaze into chrstal balls! We are clearly not in the zero era, but are we back to the era of high inflation of the 1970s?

An article in today's Guardian takes a critical look at economists' theories of inflation. It reports the view of Paul Krugman, professor of economics at Princeton, that we are not about to return to the 1970s because the weaknesses of unions means that a wage-price spiral is unlikely to develop. It also criticises one particular theory of inflation, the natural rate hypothesis, that claims that inflation takes off in circumstances when unemployment falls below its 'natural rate'. The idea is that such circumstances generate 'inflationary expectations'.

It's quite advanced stuff, but should be something A Level economists can digest. Click here.

Here is a list of other inflation related articles that you might find useful:

Gavyn Davies on inflation and the oil shock

Podcast by Larry Elliot, Guardian's economics editor

Larry Elliot on the problems for the Bank of England

I'm pleased that Paul Krugman is mentioned in the Guardian because this gives me a chance to recommend some further reading for sixth form economists. Krugman is a great communicator on things economic and sixth formers serious about their study of the subject should read at least one of his books. Here is a selection - again with links to Amazon (but copies are also available in the school library).

]]>2008-06-18 19:45:194X610X33<![CDATA[It's how you measure it that counts]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=32

We know that prices are rising, even if we don't read our newspapers. You would have to be remarkably absent minded not to notice that the cost of your food shopping and the cost of filling up at the petrol pump had increased over the last year.

Knowing that prices are rising and measuring those price rises are two different things, however. The problem is the official measure of inflation has to cope with the fact that we all buy different things in different places at different times. The statisticians create a kind of 'average' measure of price rises for the 'average' household based on a 'typical' pattern of expenditure. To complicate matters, there are two measures of 'average' prices - the consumer price index (CPI) and the retail price index (RPI).

In April the CPI showed that the rate at which prices were rising in the economy jumped from 2.5% to 3.0%. When you look at people's expectations of inflation, however, things are very different. The lastest measure of inflation expectations shows a median of almost 5%. People obviously don't believe the official CPI data. They think prices are rising by much more than 3%. The answer might be in the left hand chart below. The price index for food is shwoing food prices rising by almost 12%. Interestingly, the old measure of inflation (the RPI) is much more consistent with expectations at 4.2% last month.

Expectations matter. For one thing they can feed through (pardon the pun) into pay demands. If workers expect prices to rise they want a pay rise to compensate. But higher pay will push up costs and eventually prices. We have grown used to living in an era without siginificant inflation. Maybe that is about to change. Certainly, it is unlikely that interest rates are going to fall in the near future and will probably rise next month.

You will, of course, let me know if I am wrong! The economy is in for a bumpy ride in the next year.

Source of charts: Hamish McRae, Economic View, Independent 16 June

]]>2008-06-16 19:58:544X610X32<![CDATA[Stiglitz on scarcity]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=31

Rising food prices have been the mainstay of economic journalists over the last year. Much of what has been written has, of course, been wise and sensible in terms of analysis of cause and effect. Some has been less so.

When a nobel prize-winning economist, and former Vice President and Chief Economist of the World Bank, tackles the issues then we should all sit up and listen.

In today's Guardian, Joseph Stiglitz takes a critical look at policies to promote economic growth and the causes of rising food prices. He makes the following bold observation:

"The world needs to rethink the sources of growth."

He goes on to argue that taxation can be used to rebalance growth in Western economies and that agricultural policies of the US and the EU are in need of major reform. He ends by saying:

"But this is just a start: we have treated our most precious resources ? clean water and air ? as if they were free. Only new patterns of consumption and production ? a new economic model ? can address that most fundamental resource problem."

Great reading for all. Click here and ponder what this highly respected economist is saying.

Sixth form economists ought to read at least one of Stiglitz books during their two years studying the subject. Here's a selection (with links to Amazon!):

]]>2008-06-16 17:54:464X610X31<![CDATA[Oil prices]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=30

Saudi Oil Minister Ali al-Naimi (image from May 2008)

There can be no doubt that the rising price of oil has dominated the news in recent days. In the UK, the tanker drivers strike led to a 25% increase in demand at the weekend with long queues at petrol stations particularly in the North West.

Welcome news this morning then that Saudia Arabia is to increase production of crude oil in order to increase world supply.

Some articles which you may find useful to read include:

BBC report on the tanker drivers strike

BBC report on Saudia Arabia's decision to boost supply

BBC Q&A guide to the rising price of oil

A Level economist should read Stephen King's article in today's Independent newspaper on what he believes must happen in order to curb the global inflationary pressures. Click here.

]]>2008-06-16 08:19:474X610X30<![CDATA[Prince's Trust]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=29

GCSE students in Yr 10 will soon be coming on to investigating the different ways that businesses can raise finance.

Raising finance is a real problem for those starting up in business for the first time. This is especially difficult for those entrepreneurs who are young. Most business start ups are financed from individual's savings. Young people often lack savings simply because they haven't been in employment for long or maybe because they haven't been in employment at all.

This is where the Prince's Trust can help. Currently celebrating its 25th anniversary, the Trust's Business Programme has helped more than 70,000 people set up their own enterprises.

Read about one of its success stories, Lorraine Boothe, now aged 30 here.

You can find out more about the Prince's Trust by visiting their website and watching the videos of businesses that have been helped into existence by the Trust. Click here.

]]>2008-06-12 11:33:054X610X29<![CDATA[Inflation watch]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=28

Since the last Daily News article on the dilemma for central banks, it seems that the inflation problem is getting worse and the likelihood of a cut in interest rates to stimulate spending disappearing into the sunset.

There have been lots of articles recently painting a grim picture for inflation. Yesterday's from page of the Independent reported a forecast from the chief executive of the world's largest energy company, Gazprom, that oil prices are set to double to $250 a barrel and that £2 a litre petrol was on its way. Read about it here.

Other news focused on the spread of inflation beyond energy and food to manufacturing in general. Here is a selection of this week's grim news and commentary:

Larry Elliot's comment in the Guardian

Views of a range of economists on rising producer prices

Larry Elliot again on 'absolutely horredous' inflation figures

]]>2008-06-12 00:00:554X610X28<![CDATA[Which way for interest rates?]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=26

Welcome back to Daily News. I promise to make it daily from now on!

Which way for interest rates? Well, the Bank of England recently put interest rates on hold, not moving them up or down. Economic slowdown and fears of recession suggest they should go down to encourage spending. Worries of rising inflationary pressures suggest they should go up to curb overall demand in the economy. Unfortunately, many economies are experiencing both economic slowdown and rising inflationary pressures.

What should central banks do? For most central banks, like the Bank of England, the primary objective is to deliver price stability. This suggests that monetary policy will tighten and the economy is in for a hard landing.

Here are some recent articles that are worth reading on this issue:

Stephen King, in today's Independent, take a look at the dilemma for central banks.

Brief reports on the fall in UK consumer confidence in today's Independent and on the BBC website.

Rising oil prices, one of the main causes of inflationary pressures, dominates the meeting of G8

]]>2008-06-09 08:26:534X610X26<![CDATA[Currys.digital now cutting stores as well as prices]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=25

DSG International, owners of Currys and PC World, have today announced plans to close more than 40% of their 177 stores.

The recent slowdown in consumer spending, increased competition from online electrical retailers and fears of new competition from American giant Best Buy are all having a major impact on the business. Currys has already had to warn investors that its profits were below forecast twice this year. With consumers keen to seek out bargains, the company is finding its profit margins falling and is responding by cutting its cost base. The most significant fixed cost for its business is the rent and rates on its high street stores, hence the move to reduce costs by closing stores.

To read more about this story on the BBC website click here.

To read the Independent's coverage of the story click here.

And here is the Guardian's take on the issues facing Currys

]]>2008-05-16 19:39:354X610X25<![CDATA[Rise in bus revenue for FirstGroup]]>http://www.itslearning.com/kingschester/sdw/blog/?PortfolioItemComment=True&PortfolioItemID=24

What does it take to get motorists out of their cars and onto public transport?

The conventional wisdom amongst economists is that the cross elasticity of demand between private motoring and bus travel is price inelastic. News from FirstGroup today challenges that assumption. It seems as though motorists are making the switch to pulic transport as a result of the recent rises in fuel prices.

FirstGroup have announced that so far in 2008, revenues from its bus division have increased by 3.5% to £540 million. Who said pricing motorists out of their cars is difficult?