Talk about getting caught between a rock and rocking the entire European Union.
Inflation kicked up to an annual rate of 2.2% in December in the European Union. That’s well above the European Central Bank’s oft-stated target of an annual rate “close but below” 2%.
In normal times, the European Central Bank, drawing on the remaining DNA from its ancestors at Germany’s Bundesbank, would raise interest rates to clamp down on inflation faster than you can say “Johannes Robinson.”
But these aren’t normal times. The bank is fighting to keep debt crises in Greece, Ireland, Portugal, and Spain from becoming a European Union wide financial and economic crisis. And there’s no way that the European Central Bank can raise interest rates to fight inflation—and therefore slowing the economy—when growth is already so anemic that any drop would provoke an even deeper crisis.
All signs say that the bank will grit its teeth and put up with higher inflation. That’s not going to sit well with the sizeable minority of the bank’s governors that have even before this data release urged that the bank cut back on buying the debt of hard-pressed European governments and banks.
And if you think this number will raise tensions, just you wait. The trends point to even higher inflation by February when the inflation number could rise to an annual 2.5% rate according to Barclay’s Capital.
That forecast seems almost certain to be right since the euro debt crisis will continue to depress the value of the euro, which will lead to higher prices—in euros—for food and fuel imports, the two biggest sources of the current rise in European inflation. Higher inflation, in turn, will push up European interest rates, worsening the debt crisis, and produce an even weaker euro.
Something I didn’t see from any comment is an implication for one of the “core countries” of the European Union. Germany has enjoyed almost a stellar rebound in its exports to China, USA, and the rest of the world. Though many there won’t be thrilled with a fall in the euro, certainly the German exporting machine will be more than happy to sell its excellent products at lower price than its competitors.
I’m concerned that the European inflation threat will carry over here, either as a reality or a perceived reality. Either way, it could have a real impact on many of our high dividend producers, such as reits and mortgage banks. Any thoughts?
Jim,
Any updated numbers for consumer spending as % of economy in USA? The 70% is still being used, but with increase in savings, that has to be at least down to 65%….lower I suspect due to lower spending?
THX
Dusty
Yes, I must have old information (Scottrade’s website was the reference) as I went back to your website, Jim, and quickly, roughly, added up the percentage of each stock and came up with nearly 80% of the stock fund’s picks.
Thanks for your quick reply. Scottrade’s Bad.
I live in Spain. Beginning this month a rise in electricity of 10%. Tobacco rose 30% within last year. All our shopping in mass center for food mainly rose at least 25 % within the last two years. Gasoline is up and I dare not look anymore the meter, I just fill for 20 €uros and there are around 13 or 15 liters. I think the european statistics are completely false. I guess all they want is to completely debase the €uro.
If you have seen the rise in Usd prices for Coffee, Wheat, Cotton especially, it is more than crystal clear that 2011 will be unsustainable for most people in Europe. The only outcome will probably be a dissolution of the €uro zone. Serious times ahead for sure. Today was a festive day and there were none on the roads. What is going on ? When will they have the courage to declare Europe bankrupt ? Who will believe that Spain only has a public debt of 1 to 2 trillion €uros. Who really believes that they will pay ?
Blukazam, I think you’ve just got old info. I got the fund up to 75% invested or so by the end of December.
Blukazam, Where are you seeing that information? On the JUBAX website it lists the holdings and it looks like its nearly fully invested.
http://jubakfund.com/about-the-fund/holdings/
Off topic, Jim.
I’m surprised to learn that JUBAX has 81.5% of its holdings in a Fidelity Government Account and not equities of your choosing. Am I missing something?