Price growth in the 16 countries that share the euro accelerated to a rate above the target set by the European Central Bank for the first time in two years, according to Financial Times. The annual rate of inflation in the eurozone moved up from 1.9% in November to a preliminary reading of 2.2% in the last month of 2010, exceeding the target rate of “close but below” 2% set by the ECB. The flash report did not include details of price increase in subcategories, but food and energy prices were likely behind the rise.
The jump in inflation is likely to spur policymakers towards fiscal tightening, with concerns rising among some officials that long-term low interest rates may be distorting the economy. The ECB’s main interest rate has been at a record low 1% since May 2009, while the central bank continues to offer unlimited liquidity to banks in the region. However, the rise in inflation does not account for the continued slow growth in peripheral economies struggling with sovereign debts, and poses a challenge for policymakers seeking to apply a uniform policy to the region as a whole.
