Wednesday, May 31, 2006

Inflationary Pressures Continues to Accelerate in Europe

The latest statistics all show that inflation is worsening in the Euro-zone and that the ECB because of its far too slow pace in raising rates ( roughly a quarter point every quarter year, it seems) therefore risks "falling behind the curve".

M3 money supply for example, rose with 8.8% in April compared to a year earlier, way above the 4.5% the ECB is supposed to target. Private sector debt growth rose to 11.3%, way above nominal growth levels in output and income.

Mmeanwhile, the preliminary estimate of May consumer price inflation rose to 2.5%, with Spain as usual having the highest number at 4.1%.

The ECB can only blame itself, by keeping down rates at the far too low level of 2% until late last year, and then raising rates far too slowly.

Meanwhile, as "loose" as Euro-zone monetary conditions may be, they are even worse in Sweden, with M3 money supply growth accelerating to 11.9% and bank lending growth accelerating to 17.5%. Consumer price inflation numbers are not yet available for May, but they most likely rose from their multi-year high of 1.8% in April.

Consumer price inflation in Sweden have for the last few years been held down by increased competion and deregulation of the retail sector, but with monetary policy being as loose as it is now, even this factor should not be able to prevent consumer price inflation from rising above the 2% that the Riksbank aims for.


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