Friday, January 14, 2011

Signs of Badness Coming: Inflation In The Eurozone

Update below.

The BBC is reporting that annualized inflation in the eurozone was 2.2% in December—up from 1.9% annualized in November.

But what’s more startling is that, on a month-to-month basis, consumer prices rose 0.6%.

The past jostling against the dollar that the euro has gotten because of the Crises of the PIIGS has hurt it, obviously. But there are two other issues: Money-printing by the European Central Bank in its quest to “provide liquidity”, and the rise of commodities (we here at The Hourly G think these phenomena are inextricably related—but that’s for another post). 

So just like with the dollar, commodities are rising steeply and steadily against the euro—so it was inevitable that consumer inflation would begin to rise.

Does this month’s rise prove anything beyond a shadow of a doubt? No. Does it prove anything at all? Again, no—but it’s an indicator. Consider the following chart:
Eurozone Inflation Rate to November 2010, click to expand.

(This chart doesn’t include the latest rise to 2.2%.)

If inflation next month is still tripping upwards at this pace, then Brussels: We have a problem.

Stay tuned.


Bloomberg is reporting that the European Central Bank’s Axel Webber said, “Risks to the medium-term outlook for inflation, which are so far still broadly balanced, could well move to the upside.”

Webber also said that the economic picture looked rosier, specifically saying “The economic outlook has brightened considerably.”—this is to be expected: A lot of Central Bankers on both sides of the Atlantic are going to push the mainstream media into interpreting the rise in inflation as a sign that the economy is improving: Webber’s words are par for that course. 

The economic outlook has brightened considerably: That’s Webber’s pronouncement, after the near-meltdown of Ireland, Portugal’s skirting the abyss, and Spain teetering like a drunken sailor?

It’s not just the Federal Reserve drones who are high on crack—the ECB too seems to have a goodly supply

1 comment:

  1. I can well understand Merkel and her govt being virulently opposed to so called Q.E ( printing and debasing of the currency , lets call a spade a spade ).
    Germany still has in its memory the days of inflation. Inflation once it sets in is like a bacteria , it just takes on a life of its own and becomes unstoppable.


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