Europe’s still scared of inflation

The European Council met to debate about the budget for the Union for the next seven years and it reached an uneasy agreement. Yet, there was no such luck on a discussion that has sliced Europe in two: austerity or economic growth?

The train crash, that is Merkel and Hollande–or the well-off against the less-than-well-off, as some see it–seems to be too wrecked to repair. While the German chancellor refuses to give in to the growth pact for which half of Europe sighs, Hollande leads the southern countries’ complaints, very aware that France’s economic stand is getting weaker by the quarter.

On the background, there still is another debate, that about inflation, which worries economic authorities all over the world as it always did and will do. Indeed, some of the worst economic disasters had an out-of-control increase of prices at their very heart.

The harmonised inflation rate for the eurozone in 2013 will be lower than 2%, in line with the price stability target set by the European Central Bank. That is why governor Mario Draghi has been trying to highlight that growth is a bigger challenge than eventual rises in monetary aggregates, even if north and central European countries disagree in some obsessive manner, mainly for historical reasons.

Inflation fell in January to its lowest since 2010, a sign that businesses are cutting prices to attract customers amid an all-time high unemployment plague. Consumer price inflation in the eurozone was 2% in January.

But data shows it is not an index that sits down easily. While forecasts for the eurozone put it at 1.8% this year, in the UK cannot leave the 2.5% mark. In the US, it is expected to be 1.5% or 0,6 percentage points lower than in 2012. In Brazil, consumer price inflation is expected to be 6%, and 3.9% in Mexico. And in China it was 2.5%, but its economy grew by 7.6%.

The Merkel-Hollande train isn’t going to move on any time soon.

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