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European Inflation Comes At 29 Month High Of 2.6%, Well Above Expectations, Sends EURUSD Above 1.42

Tyler Durden's picture




 

Earlier Eurostat released its February European CPI number which was higher than January (2.4%) and consensus (2.4%), coming at 2.6%. That is the fastest inflation growth in more than two years in March as
European Central Bank policy makers prepared to raise interest
rates to fight increasing price pressures.Per Bloomberg: "Inflation in the 17-nation euro region quickened to 2.6 percent from 2.4 percent in February, the European Union’s statistics office in Luxembourg said today in an initial estimate. That’s the fastest since October 2008 and exceeds the ECB’s 2 percent limit for a fourth month. Economists forecast inflation to hold at 2.4 percent, the median of 32 estimates in a Bloomberg News survey showed." The primary reason for the jump in inflation are energy costs, leading to such paradoxes as $9/gallon gasoline, as Europe is far more expose to Brent prices than the US which has spiked this year: "Crude oil prices have surged 15 percent this year as output from Libya slumped. An armed conflict between Libyan leader Muammar Qaddafi’s troops and rebel forces has forced companies including Total SA and ConocoPhillips to suspend operations and evacuate staff. Crude was trading at $105.30 a barrel today." The result of the release was a kneejerk jump in the EURUSD to 1.423 as a modest hike by the ECB seems now virtually assured. Of course, a hike in rates means that the already cooling Economy will deteriorate even more. What that means for a continent that is now harboring increasingly more insolvent nations only Trichet (and Bernanke) knows.

More from Market News:

Consumer price inflation in the Eurozone surpassed expectations in March, hitting a 29-month high annual rate of 2.6%, preliminary estimates from Eurostat showed on Thursday.

More detailed data, including the monthly HICP change and sector breakdown, are to be published April 15. The flash estimate points to a monthly rise of slightly more than 1.1%. National CPI reports from Germany and Spain highlighted price pressures from costlier energy and food.

Noting higher food, energy and metals prices, companies polled for the March purchasing managers index (PMI) reported the strongest jump in input costs since July 2008.

Output prices also saw strong upward movement this month, reflecting firms' "increased success" in passing on their rising costs to clients, the PMI report added.

Selling price expectations were revised up across all major sectors of the Eurozone in March, the European Commission survey showed. Expectations in industry hit their highest point since early 1995, while expectations in services, retail and construction reached levels unseen since the onset of the financial crisis.

Consumers also anticipate rising prices in the coming year, as evidenced by the Commission's sub-index hitting a near three-year high.

Recent developments in oil markets, due in large part to ongoing tensions in the Middle East and North Africa as well as the catastrophes in Japan, point to further upward price pressures stemming from energy.

And some more from Bloomberg:

The euro-region economy is already showing some signs of cooling. European economic confidence worsened in March, with both manufacturers and consumers forecasting rising prices over the coming 12 months. Services and manufacturing growth weakened this month and German investor confidence dropped.

At their April 7 meeting, ECB council members will have to weigh threats to economic growth with the risks of surging costs leading to more entrenched inflation. The Frankfurt-based central bank earlier this month forecast euro-region inflation to average about 2.3 percent this year and 1.7 percent in 2012.

“There’s a considerable risk that inflation expectations will get out of control,” Andrew Bosomworth, a money manager at Pacific Investment Management Co., said in an interview with Francine Lacqua on Bloomberg Television’s “On The Move” on March 29. “When you look at the strength of the core countries in the euro area, a 1 percent repo rate is way too low.”

The statistics office will release a breakdown of March consumer prices including core rates excluding volatile costs next month. Euro-region core inflation slowed to 1 percent in February from 1.1 percent in the previous month.

 

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Thu, 03/31/2011 - 07:25 | 1120685 TexDenim
TexDenim's picture

How can anyone be surprised at this? Oil price alone would have clued an analyst to a rise of at least 2%. It's so weird when supposedly respected people who have the education and tools to understand what's going on act like they're surprised when the obvious occurs. It's going to be even worse in the US because of Zimbabwe Ben's free money program. Take a look at your food bill and gasoline bill and you'll get a clue.

Thu, 03/31/2011 - 07:51 | 1120723 Cash_is_Trash
Cash_is_Trash's picture

people who have the education and tools to understand what's going on

Tex, these people have schooling not education. They've been to the lame-ass classes and have worthless degrees, but the leaders cannot reason critically or question the motives of the system they belong to.

Point is, bureaucrats have no intention to think outside of the box.

Thu, 03/31/2011 - 08:27 | 1120796 Harlequin001
Harlequin001's picture

What is inflation?

It's a straight forward question because the official inflation figures cannot possibly be correct.

Assuming that we have parity between euros and dollars and that oil is priced at $10 per barrel, then an increase in the dollar price of oil would have a similar commensurate increase in euros, simple stuff.Now, if the exchange rate for dollars drops by 50% against the euro then that would no longer be the case.

There can be two extremes, either the oil price would remain at $10 dollars which would now equate to only 5 euros per barrel, which is a spine shattering deflation rate of some 50% in the euro-zone OR the price would remain stable at 10 euros which must now equate to 20 dollars per barrel. That's a 100% inflation rate in dollars over the period.

You can have one or the other or some mix of the two, but if the dollar drops by 50% against the euro then anything less than a 100% inflation rate over the period in dollars MUST manifest itself as deflation in euros, which we categorically do not and have not had. A price hike to say 18 dollars would equate to only 9 euros which is still a 10% deflation rate in euros.

In 2002 one USD bought 1.20 euros, or thereabouts, in 2006 it bought 60 Euro cents, roughly about a 50% drop in 6 years which is the same as this example. Any movement in the exchange rate will affect ALL costs in that currency so the average inflation rate in dollars using this example would have been around 16% pa, yet miraculously the inflation rates in both Europe and the US remain similar despite this massive divergence of currencies. This is simply not mathematically possible.

It cannot be the result of anything other than price fixing, pure and simple, which means that as investors we cannot trust any figures now being given to us by government, any government. It's the reason why we buy physical gold bullion and store it.

The very thought that we can even have a jobless recovery's should make the hairs on the back of your neck stand up because it is increasing wages alone that enable borrowers to make larger repayments on a sustainable basis in a fiat system. A jobless recovery is a clear indication that the economy is not expanding or recovering at all, and that prices are merely being inflated through an increased money supply to create the illusion that we're doing well when we're actually in dire straights. The media's obsession with deficits and GDP distracts us from the simple truth that our global economy is contracting and that we are simply inflating prices for the sake of good PR. It isn't going to produce any lasting recovery.

If you don't grasp this you are going to lose your money.

Buy gold.

Thu, 03/31/2011 - 09:54 | 1121132 TexDenim
TexDenim's picture

Cash -- I had a good experience at MBA school, learned a lot that was dead wrong (efficient markets, CAPM, etc.) but in the end I learned to think critically and I mastered basic statistics and a little bit of econometrics. Surely these guys at GS have at least as good training as I had, and yet they don't seem to be able to master simple model building.

Thu, 03/31/2011 - 07:28 | 1120689 Malaespina
Malaespina's picture

Trichet will send Eurozone into depression again, with his ill timed rate hikes, but you know he has a mandaaaaate as Inspecteur Cluseau of the Eurozone. Spain will go into death spiral after that, as more and more families will just be unable to cope with mortgage payments.

Thu, 03/31/2011 - 08:23 | 1120802 DavidC
DavidC's picture

What do you mean, 'depression again'?

We never came out of the first part of it, NOTHING has changed fundamentally since 2008, other than goosing the stock markets by pumping massive amounts of money into the system.

Take a look at the charts for USA 1929/1930 and Japan 1990s. I know the money situation was different in the US in 1929, but Japan's reponse(s) were very similar to what Benny boy has been doing. Drop, followed by bounce ('Everything's getting back to normal!') followed by the big drop.

DavidC

Thu, 03/31/2011 - 07:31 | 1120690 Dan The Man
Dan The Man's picture

i think its cuz they don't buy anything.  they have other people buy shit for them

Thu, 03/31/2011 - 07:41 | 1120706 Yes We Can. But...
Yes We Can. But Lets Not.'s picture

Dunno about Europe, but I'm definitely seeing very noticeable retail price increases here in the US.

Thu, 03/31/2011 - 07:54 | 1120732 EscapeKey
EscapeKey's picture

You'd have to be a hardcore denialist (aka "Keynesian") not to see them here in the UK.

Thu, 03/31/2011 - 08:13 | 1120775 MarketTruth
MarketTruth's picture

Plus in the UK they raised VAT from 17% to 20% starting January 1, so that alone is 3% 'inflation' in the price of goods even without any actual price increases.

Thu, 03/31/2011 - 08:45 | 1120869 pendragon
pendragon's picture

inflation only exists in the eurozone not anywhere else...according to currency markets anyway.

Thu, 03/31/2011 - 07:47 | 1120721 Ivanovich
Ivanovich's picture

This is playing out exactly like Spring/Summer 2008 when inflation was king (though oil was higher and food was lower) and JCT in his infinite wisdom, began hiking rates, only to reverse course 3 months later when the crash came.  The only difference is that this time, the PIIGS are in the mix.

 

I'm sure it'll be better this time around.

Thu, 03/31/2011 - 08:05 | 1120755 Cash_is_Trash
Cash_is_Trash's picture

The U.S. is now fighting and losing two wars, a third is in the works.

On the upside, we'll win the currency war.

First currency to be dropped as a medium of exchange wins!

 

Thu, 03/31/2011 - 07:57 | 1120740 Ferg .
Ferg .'s picture

This pretty much solidifies a 100% probability of an April rate hike . Unlike the Fed , the ECB has but one central objective : price stability .

With regard to EUR/USD though I'd imagine that a final thrust higher in this staggering run from the January lows will occur immediately after the raise in interest rates or in the days following . Speculators seem to be forgetting that Trichet has made it clear that an April hike will not be the start of a continual tightening cycle . Furthermore the underlying problems that have plagued the Eurozone over the last year or so haven't really been solved . Looks to me like we could reach as high as 1.4500 , which is a level the man himself , John Taylor , mentioned as a potential top .

Really kicking myself that I didn't get long . Was waiting for an entry at around 1.4050 yesterday . Well , it reached there , but just at a time that I was away from my screen , and I don't like using limit orders during volatile trading hours . Oh well , waiting patiently now for a short side position .

Thu, 03/31/2011 - 08:24 | 1120800 Sudden Debt
Sudden Debt's picture

I hope not...

Thu, 03/31/2011 - 08:41 | 1120854 Harlequin001
Harlequin001's picture

If rates go up they will very soon go down. Why would you put rates up if it cost you more to raise money to bailout the banks you cut rates to save in the first place.

I'd say chances are somewhere between little and none, but if they did it would be purely symbolic, and very short lived...

Thu, 03/31/2011 - 08:23 | 1120797 Sudden Debt
Sudden Debt's picture

AND LIKE THAT, WE ALL GET A RAISE :)

 

Thu, 03/31/2011 - 09:46 | 1121097 Urban Redneck
Urban Redneck's picture

Trichet runs a single-mandate operation, but what is to stop him from simply raising the  "acceptable" inflation limit from 2%, other than having to admit he learned something from his last colossal failure of a rate hike?

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