Tuesday, January 25, 2011

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Euro inflation risk

Positive signs for the European economy but a request to increase interest rates

signs of rising inflationary pressures in the euro area, in a time when the economy appears stronger, especially in Germany. The situation is delicate from a viewpoint of monetary policy, and yesterday, once again, the European Central Bank expressed concern about the trend of prices.
The PMI, which reflects the confidence of purchasing managers of service firms in the euro zone rose in January, from 54.2 to 55.2, well above the level of 50, which is the dividing line between expansion and economic recession. While the same index, but this time on industry, decreased slightly to 56.9 from 57.1.
indicator that brings together the two sectors of the economy is, however, increased from 55.5 to 56.3. The data thus confirm that the European economy is going through a positive, thanks mainly to Germany, where the recovery is particularly lively.

Last week the Ifo business confidence index was at its highest of the last twenty years.
These figures, according to economists and François Cabau Frank Engels, Barclays Capital, pointed to the possibility of growth of gross domestic product in the euro zone by 0.6% in the first quarter of this year (from 1.7% estimated for the whole 2010).

Many market analysts have noted that the data show, however, evident inflationary pressures.
In Germany, for example, the index PMI on producer prices rose to 81.2 in January, a level never before reached by an indicator born a decade now. According to the study center-Markit, which brings up precisely the Purchasing Managers' Index, companies have boosted the prices of petrol, metals and food products.
For several days, the ECB is concerned about the trend of commodity prices.

President Jean-Claude Trichet said yesterday in an interview with the Wall Street Journal, that the tasks of the EMI is to ensure that there is a "transfer-effect" in the economy and wages.
His words have encouraged an increase euro against the dollar at 1.3640.
Central bankers are worried that increases in raw materials might have on economic fabric impregnated with ample liquidity.

The reference rate in the euro area by 1% in May 2009.
The market is uncertain about the timing of a future monetary tightening. According to many economists, there might be a first rise between June and September.

Source: Il Sole 24 Ore


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