Prices soar as ECB stares into eurozone divide
Inflation is on the rise as the European Central Bank tries to deal with diverging eurozone economic trends and China positions itself as a potential friend for indebted governments.
The ECB has been battling solvency crises in peripheral eurozone countries and supplying commercial banks with cash to ensure lending to the 17-nation economy but must now consider again its primary mandate: price stability.
Eurozone inflation was expected to hit 2.2 percent in December, the first time in two years it will have breached the central bank's target of just below 2.0 percent.
Climbing energy and food prices indicate inflation can no longer be considered a back-burner issue, complicating the ECB's task as it works to help banks strengthen their reserves and capitals to solidify their finances.
If confirmed, the latest reading would oblige ECB president Jean-Claude Trichet to take another look at what he says is the only needle on his compass.
"The ECB faces the tough task of balancing a raft of bad news from the eurozone's periphery with the more positive developments elsewhere and the fact that inflation has risen above target," said Ben May at Capital Economics.
He and other economists nonetheless expected the inflation increase to be short-lived because it stemmed in large part from a spike in energy and food prices.
And there was good news for central bank policymakers as well since eurozone economic sentiment and business activity are picking up, the economies of heavyweights France and Germany are growing, and China says it is here to help.
Vice Premier Li Keqiang visited Spain and Germany last week, and Spanish daily El Pais quoted government sources as saying that Beijing is willing to buy about 6.0 billion euros ($7.8 million) worth of Spanish public debt.
Li, widely tipped to become the next premier, said in an El Pais op-ed piece that China was sure Spain would recover from the economic crisis and that Beijing would buy more Spanish government bonds, without specifying a figure.
Comments