There’s a bit of good news for Belgian consumers: the federal energy regulator, CREG, issued a noteworthy draft decision on 10 November, characterising certain formula adjustments to energy contracts as "unfair trade practices". As from January 2023, it therefore aims to require energy suppliers to observe stricter indexation rules.
The purpose of this presentation is to explain which investment tools help in preserving the purchasing power of your savings. The authors show that investing in equities is the best way to preserve purchasing power. They further explain which classic investor mistakes cause investors to throw in the towel with disappointment. Finally, investing in gold and real estate is explained as an alternative to investing in equities. In this presentation, the authors aim to dispel the specter and aversion of investing to their audience.
In an inflationary world like we have been experiencing the last 12 to 18 months, companies are constantly confronted with exponentially rising costs. They can react in a more traditional way, for example by increasing stock or by negotiating fixed prices with their providers. However, these solutions are not always easy to get. Furthermore, the counterparty risk has also deteriorated a lot the last few months. In this article we highlight some examples of financial derivative products that can help companies in (partly) managing the volatility caused by the inflationary pressure. We focus on currency- and commodity-risk products and on inflation-swaps as examples of products that can be used for this risk management. Companies should at least contemplate the use of such products to cushion some of the inflationary pressures that surround them.
The current inflation crisis implies higher input costs, higher wage costs, pressure on margins, increasing interest rates and recession for Belgian companies. Even more important is the fact that this crisis is creating a double handicap of energy and wage costs for our economy. This will lead to less investment spending, less hiring and less economic activity. Especially the wage cost issue is looking like a painful déjà-vu. As in the past, the way out of this situation runs through an adjustment of the wage indexation mechanism. However, the economic pain probably needs to increase before the required adjustment becomes politically feasible.
There are many reasons for the huge inflation, and they reinforce each other. Considering the recent developments in energy prices, inflation should start dropping from the end of 2022 onwards. The impact of the owner-occupied house price index (OOH) on the harmonised index of consumer prices is quite neutral. Given the large swings in energy wholesale market prices, forecasting the inflation is not evident. The NBB follows a bottom-up approach via the estimation of different components: energy, food, and core inflation. The impact of the high inflation, caused to a large extend by the energy prize shock, implies an impoverishment of the Belgian economy. On average the purchasing power of the households is protected, as a large part of the bill (wage costs) is paid by the companies. But higher wages negatively impact the competitiveness of the companies. Also, the primary fiscal deficit of the government is increasing, while the public debt is growing. In response to the high inflation environment, the ECB has tightened the monetary policy by increasing interest rates and stopping the net purchase programmes.
This is the speech given by Frank Lierman, Editor in Chief of Bank-en Financiewezen/Revue Bancaire et Financière, to announce the winners of the BFF prize for best master thesis 2021-2022 during the event “30 Voices on 2030: The Future of Financial Services” at the National Bank of Belgium (30 November 2022).
A national bank would not be a bank if it could not lend money. Indeed, only a commercial bank can take out a loan from the national bank, but other than that, the process is not that much different from when you as an individual take out a loan from a commercial bank. To take out a loan from a national bank, you would also need collateral, independent third parties and - as for all financial institutions - risks are controlled to a maximum.
Persistently high inflation and aggressive monetary policy tightening seem set to cause a global recession. Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades. Meanwhile, confidence among firms and households has fallen to depressed levels. The pace of monetary tightening will likely slow in the coming months. However, more forceful action might be required to dampen demand and drive inflation out of the economic system. Another risk is that higher interest rates cause problems in the financial system which then seep into the real economy.
The eurozone is suffering from the surge in energy prices, rising interest rates and weaker external demand. The question is not whether the region faces a recession, but rather how deep and how long it will last. And with inflation to stay uncomfortably high, the ECB will press on with tightening policy. The US economy will likely experience a milder recession in 2023, as rate hikes weigh on consumption and investment (particularly residential). Inflation may well fall back more rapidly than widely expected, opening the door for rate cuts again from late 2023 onwards. In China, despite greater policy stimulus, growth will remain depressed next year as the zero-COVID approach continues to weigh on activity, exports fall, and property construction fails to recover materially.
In this article, we look back at the origin of the inflation that led the main central banks to drastically increase their key rates this year. The article then illustrates the initial effects of these rate hikes on the economy and financial markets. Finally, it questions the need for central banks to continue these rate hikes, distinguishing between the situation in the United States and in the Eurozone.
This report summarizes the key messages of the keynote speeches, invited papers and working papers presented and discussed during the biennial conference on “Household Heterogeneity and Policy Relevance”, organized by the National Bank of Belgium on 20 and 21 October 2022.