Construction costs are currently skyrocketing

Sorry, but that is absolute nonsense. Why demographic change reduces interest rates I have already explained in a previous post. Besides, the growth phase and globalization will soon come to an end (because of demographic change). Eternal economic growth is not possible, and in this scenario, there are simply no significant interest rates. Where is growth supposed to come from if populations are shrinking? China reached its peak in 2010 and will have only half as many people in 2050 as it does now.

What chand1986 wrote is also correct. It is external shocks that have caused the current inflation. There is not much central banks can do about that.

Oh, "external" shocks – of course the system can never be responsible for that, and that is completely new, has never happened before. And regarding your bold idea that "demographic change" reduces interest rates forever, you have written nothing substantial except "google". Sorry, the "there is no eternal growth" theory is ultimately on the same level as the St. Petersburg stories of another user here.

But our economy is not growing strongly at all. There is no spiral and none is in sight either. So what exactly should be cooled down and why?

The current situation is more like this: your house is on fire and when the central bank fire brigade arrives, instead of water, gasoline comes out of the hose. So it makes sense at least not to fuel it further with bond purchase programs and negative interest rates. And regardless of that... I do see signs of a spiral. Just look at the demands of IG Metall. Or the minimum wage increase bypassing the commission set up specifically for that. First, those with a strong union get a raise. Then the rest follows. Or are you of the opinion that a 2% wage increase is enough for you with the current inflation?

I’m about to buy my parents’ house soon and have the vague feeling that I’m hitting the worst possible timing…

I can understand that. I’m glad that the big decisions for me have already been made, no matter if in hindsight they were good or bad. Nobody can foresee the future and it can either turn out much worse than expected... or also much better. There is enough potential for future success stories, they just don’t make it into the media as easily as bad news.

The question arises why the media, driven by mainstream economists, insist that higher key interest rates are now appropriate.

This is even completely on topic: we can see from mortgage interest rates that this is an investment deterrent. Logical.

Do we really need this: fewer (!) investments? The idea behind such interest rate hikes is to stop a wage-price spiral by dampening the economy.

But our economy is not growing strongly at all. There is no spiral and none is in sight. So what exactly should be dampened and why? When I find more insightful comments in a house-building forum than in the established media world, something is wrong.

I’m soon buying the parental home and have the vague feeling of catching the worst possible timing…

Why? According to your thesis, everything is just fine in the world economy, and the problems in China, the US, and the EU are just, well, what — imagined? And there is no wage-price spiral? If I remember correctly, you were somehow at university(?) in the public sector, right? Maybe not there. But elsewhere there certainly are other demands — whether they will be met is another matter.

Of course, investments are necessary. The question is whether the right investments have been made. Don’t you find it somewhat strange that companies today rarely go insolvent? Everyone perfectly at work? Do you believe that capital allocation is working well with low interest rates, i.e., people building huge sheds in the middle of nowhere that they can hardly afford — or globally — that ghost towns are being built that nobody needs?

In conclusion — you would have been better off buying the house 6-9 months ago — and preferably already fully renovated. But that’s always the case with hindsight… ;)

Why? According to your thesis, everything is perfectly fine in the world economy, and the problems in China, the US, and the EU are just, well, what – imaginary?

??

I clearly stated that we have problems and what they are!? So I don’t know what you are referring to. Reflex?

It’s quite simple: Inflation has a domestic component, which is given by the increase in overall economic labor unit costs in international currency. This is a long-term correlation and what one actually understands as “inflation.” It also has an external component, which are supply/demand shocks from abroad. The central bank can only do something about the first one, and even then only indirectly by trying to steer the economy via interest rates. It has nothing to do with the second.

Currently, we have supply shocks from abroad in Germany, several at once. These are our problems, and I don’t know where I denied them. What can the ECB do about it? Nothing. Ships don’t set sail in China just because we raise interest rates here.

Or do you think that a 2% wage increase is enough for you with the current inflation?

I am of the well-founded opinion that 2% has never been enough and has always been too little. Because: That is just the declared inflation target of the Eurozone. That, PLUS productivity growth, would have to be earned by EVERYONE per year in order to even reach the 2% target. In fact, Germany has always been significantly below this since the beginning of the euro.

Now, some wage increases are approaching that for the first time, and immediately there is talk of a wage-price spiral. Recall that during the oil price crises, wage increases were 11% - 16% per year across the board. Today, where exactly are we p.a. (always pay attention to the terms of the agreements)? And then only in selected sectors, because the unions are much smaller and comprehensive collective agreements no longer exist. The numbers simply do not support this.

Therefore, I consider the wage-price spiral a chimera and the ECB’s action… stupid. They noticed this themselves too. Immediately, the interest rates of the member countries begin to diverge, and then an emergency meeting has to be held. The result is some new funky-fancy program to collect what was caused upfront on the interest rate front. Great.

In conclusion – you should have bought the house 6-9 months ago – and preferably already fully renovated. But that’s always the case with hindsight.. ;)

My analysis showed the same :-/

The problem with spirals is that they are hard to stop once they have gained momentum. This is one of the major lessons of the 70s, when it took a long time until someone like Volcker was found who was willing to do something against inflation regardless of a recession. With 20% interest rates, he succeeded, but the price was high and does not necessarily encourage imitation now. That is why attempts are now made to slow it down earlier. The central bank can only lose in the process. If we still have a spiral, it has failed. If there is no spiral, the prevention paradox applies.

Currently, we have supply shocks from abroad in Germany, several times over. These are our problems, and I don’t know where I would have denied them. What can the ECB do about it? Nothing. No ships sail from China just because we raise interest rates here.

Central banks use the other lever and try to reduce demand. Then prices come back into balance. Doing nothing has been done long enough, resulting in the situation we currently have.
Expectations are particularly important here. If everyone expects scarcity and high price increases, then everyone tries to stock up, and as a result, there is not only a supply shock but also a demand shock. Examples of craftsmen who filled the last corner of their storerooms have already been mentioned several times in this thread.
Rebar steel is another example. Since it became clear that hardly any new projects are being started, the price is going down again, even though the supply side has not really improved.

Therefore, I consider the wage-price spiral a chimera and the ECB’s action… stupid. They noticed that themselves. Immediately the interest rates of the member countries begin to diverge, and suddenly an emergency meeting has to be held. The result is some new funky-fancy program that is supposed to pick up at the back what is caused at the front by interest rates. Great.

The divergence of interest rates is the normal state; after all, the market adjusts according to perceived risk. The abnormal condition is that the central bank sets the interest rates for individual countries. For that reason alone, bond purchase programs should be stopped and phased out in the medium term. If different parts of a union have different economic strengths and develop differently, that has to be solved politically.
The problem here is less the end of the purchase programs but more that the market was distorted beforehand. This is now backfiring on the ECB. Market forces can be denied or ignored—many like to do that—but they still exist, whether you like it or not. In addition, at the political level, too little has been done in the last ten years to address the problem. It was not only Greece back then; Spain and Italy were also mentioned as candidates for collapse, and especially Italy was already classified as "too big to fail." Little happened, while in the meantime one protest movement and chaotic group after another governed.

Oh, "external" shocks – the system can of course never be blamed for that, and that's completely new, it has never happened before. And regarding your bold idea that the "demographic change" will reduce interest rates forever, you didn't write anything substantial except "google". Sorry, the "there is no eternal growth" theory is ultimately on the same level as the St. Petersburg stories of another user here.

That is not true, I wrote that in a previous post. The aging of society goes hand in hand with more saving and investing. This leads to an increased demand for investments and less consumption. That pushes interest rates down. Japan is the best example.

In the USA, it looks different. Therefore, there will inevitably be higher interest rates there and capital will flow there.