Saturday 21 October 2017

Two-speed euro area a dilemma for ECB's Trichet

Jean-Claude Trichet said core inflation, currently running above expectations, was not a good gauge of future price pressures, but he said the ECB was ensuring higher energy prices did not seep into other prices. Photo: Getty Images
Jean-Claude Trichet said core inflation, currently running above expectations, was not a good gauge of future price pressures, but he said the ECB was ensuring higher energy prices did not seep into other prices. Photo: Getty Images
Donal O'Donovan

Donal O'Donovan

A two-speed Europe is creating an interest rate dilemma for European Central Bank (ECB) head jean Claude Trichet as Germany surges ahead and the periphery stagnates.

Economic data released last night showed significant inflationary pressures at the core but stagnation across much of the euro area, including Ireland.

The data was released as Mr Trichet warned that inflation needed to be monitored in what many took to be a hint at possible interest rate rises in 2011.

Mr Trichet said core inflation, currently running above expectations, was not a good gauge of future price pressures, but he said the ECB was ensuring higher energy prices did not seep into other prices.

The inflation fears come as economic growth in the eurozone hit a six-month high in January, according to preliminary data published by research company Markit.

The Markit composite purchasing managers index (PMI) measures economic activity across sectors ranging from banking and tourism to car makers.

The data shows factory input price hit a record 79.8 from 74.1.

Initial results suggest the PMI hit a six-month high of 56.3 in January compared to 55.5 in December. The index measures activity on a scale either side of 50. Decreases in activity are recorded from 50 down.

A separate report from Eurostat, the European Union's statistics office, showed industrial orders jumped 2.1pc in November compared to October, also beating forecasts.

Markit's January data showed significant growth across the eurozone, but when figures for the booming German economy and France are stripped out, the rest of Europe is stagnant.

German growth is now running at the highest level since 2006 and the second-highest level since the PMI was launched 13 years ago.

Dramatic

In France growth is less dramatic, but is running at the highest level in four months.

Data for the other euro area counties is not yet available.

Markit economist Chris Williamson said: "In Ireland and other peripheral countries, the pattern is that manufacturing is doing well but order books are falling."

He said peripheral economies were being dragged down by austerity budgets that were killing economic demand.

"Go to Germany and austerity is not on the agenda," he said.

Irish Independent

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