Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Eurozone inflation bounces back to record 3.6 per cent -- EUbusiness.com - business, legal and economic news and information from the European Union

Inflation in the 15 countries sharing the euro snapped back to a record 3.6 percent in May amid soaring oil prices, according to a first estimate from the EU's Eurostat data agency on Friday.

The 12-month inflation rate had eased in April to 3.3 percent after hitting 3.6 percent in March, the highest level since the launch of the euro in 1999.

Recent record oil and food prices have pushed inflation higher, putting additional strain on consumers and businesses already struggling with slowing economic growth.

The bounce-back to 3.6 percent in May took eurozone inflation further away from the European Central Bank's comfort zone, which it defines as annual consumer price growth of close to but less than 2.0 percent.

Some speculation on my part:

There's nothing the central bank can do about this inflation either on the upside or on the downside. It's not something that lends itself to monetary solutions. Differing perspectives on what the bank should do by the EU governments (mostly false, but erring on both sides) mean that it will likely do nothing. This should hopefully open a possibility for real long-term solutions through industrial and transportation policy.

by nanne (zwaerdenmaecker@gmail.com) on Sat May 31st, 2008 at 05:45:53 AM EST
[ Parent ]
I think it's more likely rates will start creeping up - probably by a point or two to give the impression that something is happening.

When tradition dictates that rates must go up, up they'll go.

This will make no sense and will be a bad thing, but the monetarists only have tradition to draw on. Expecting anything else is equivalent to expecting them to innovate, which isn't something central banks are good at.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat May 31st, 2008 at 07:13:29 AM EST
[ Parent ]
As usual, they could control the money supply by increasing reserve requirements instead of rising interest rates, thus constraining new credit but without driving existing debtors over the edge.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Sat May 31st, 2008 at 08:13:35 AM EST
[ Parent ]
Four out of six members of the executive board are from mediterranean countries now, and these countries generally prefer a weak euro and, currently, low interest rates to stimulate growth (as I said, I disagree with both sides at this time).

I expect that national policy will trump ideology, so the German/Dutch/Austrian hardline policy and the Mediterranean demand for lower interest rates should cancel each other out. It's not a naive scenario - it's what's been happening so far this year.

by nanne (zwaerdenmaecker@gmail.com) on Sat May 31st, 2008 at 08:24:34 AM EST
[ Parent ]


Top Diaries

Occasional Series