Wednesday, January 31, 2007
European Inflation Unexpectedly Stays Below ECB Limit
Inflation unexpectedly stayed below the European Central Bank’s 2 percent limit for a fifth month in January as declining oil prices offset the effect of a German tax increase. The inflation rate in the euro area was 1.9 percent this month, unchanged from December, despite the fact that economists expected inflation to accelerate, boosted by a value-added tax increase this month in Germany. Meanwhile, European unemployment declined to a record low of 7.5 percent, making the ECB concerned that faster-than-expected economic expansion and accelerating money supply growth may reignite inflation in the 13 nations sharing the euro. The ECB raised its benchmark interest rate for the sixth time in a year last month to contain price increases below the 2 percent ceiling.
Read the full story at:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aRmwkrZBm7aQ&refer=economy
Changes in the rate of growth of the general price level of the economy (i.e. inflation) can either be caused by demand side influences (demand-pull inflation) or due to changes in average costs associated with supply-side factors (cost-push inflation). The link between the pressure of demand, as encapsulated by the unemployment rate, and inflation is summarized by the so-called Phillips-curve (PC) relationship. According to the PC, the decline in the jobless rate below what economists call the natural rate, the rate at which inflation begins to push up primarily because workers demand higher wages, should trigger a process of continuing price increases, exacerbated if expectations of inflation become entrenched in the public’s perceptions.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The determination of the general price level and the dynamics of inflation and of the Phillips curve trade-off are explained in chapters 7 and 16 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
Inflation unexpectedly stayed below the European Central Bank’s 2 percent limit for a fifth month in January as declining oil prices offset the effect of a German tax increase. The inflation rate in the euro area was 1.9 percent this month, unchanged from December, despite the fact that economists expected inflation to accelerate, boosted by a value-added tax increase this month in Germany. Meanwhile, European unemployment declined to a record low of 7.5 percent, making the ECB concerned that faster-than-expected economic expansion and accelerating money supply growth may reignite inflation in the 13 nations sharing the euro. The ECB raised its benchmark interest rate for the sixth time in a year last month to contain price increases below the 2 percent ceiling.
Read the full story at:
http://www.bloomberg.com/apps/news?pid=20601068&sid=aRmwkrZBm7aQ&refer=economy
Changes in the rate of growth of the general price level of the economy (i.e. inflation) can either be caused by demand side influences (demand-pull inflation) or due to changes in average costs associated with supply-side factors (cost-push inflation). The link between the pressure of demand, as encapsulated by the unemployment rate, and inflation is summarized by the so-called Phillips-curve (PC) relationship. According to the PC, the decline in the jobless rate below what economists call the natural rate, the rate at which inflation begins to push up primarily because workers demand higher wages, should trigger a process of continuing price increases, exacerbated if expectations of inflation become entrenched in the public’s perceptions.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The determination of the general price level and the dynamics of inflation and of the Phillips curve trade-off are explained in chapters 7 and 16 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
# posted by Sam @ 12:45 
