Is the world in a state of stagflation?
*The Wall Street Journal, by Paul Hannon, September 30, 2011
”Euro-Zone Inflation Surges
Consumer prices in the 17-member euro zone rose at the fastest pace in almost three years even as the economy slowed sharply, leaving the European Central Bank’s rate setters to make a very tough call when they meet next week.
The European Union’s official statistics agency Eurostat Friday said consumer prices rose by 3.0% in the 12 months to September, up from 2.5% in August and well above the ECB’s target of just below 2.0%. It was the fastest rise in prices since October 2008, and under normal circumstances the response from the ECB’s 23-member governing council would be an immediate hike in its key interest rate.
But these aren’t normal times, and other data indicate that the economy is slowing sharply as confidence evaporates in the face of the currency area’s deepening fiscal crisis. A measure of activity compiled by the Centre for Economic Policy Research and the Bank of Italy also released Friday showed the economy grew at the slowest pace since the end of the recession in August 2009.
The Eurocoin reading suggests that growth slowed further in the third quarter, and is consistent with other timely measures of activity and leading indicators. Taken together, they suggest that the ECB may soon have to reverse its April and July rate rises.”
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