Euro Update(7): Inflation will increase the tensions between the ECB and the Member states.

As
the Eurozone’s inflation exceeds the ECB’s target of 2% for the
first time since the financial crisis
, pressure will
mount within the its governing council for interest rates to be
increased. This will put it somewhere between a rock and a hard
place, as it tries to juggle inflationary concerns and the
possibility of inducing a banking crisis, in credit strapped
peripheral countries.

It is possible that this inflation hike is
seasonal, and caused by Christmas shopping and heating needs, rather than part of
some trend. If so, the next months should be telling. If not, then
as time will pass and inflation will persist at unacceptable
levels, pressure will mount from within the ECB’s Governing Council
to increase the interest rate. For the time being, here’s what inflation has looked like for the last or so:

Whether this has had any impact on the Producer sector is yet to be
determined, as the data will only be available on January 18, 2011.

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This entry was posted in Banking, ECB, Euro-zone Update, Inflation and tagged , , . Bookmark the permalink.

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