FRANKFURT - euro zone inflation jumped past the European Central Bank target for the first time in more than two years threatens coveted course of inflation the ECB credibility, how are financial crisis, aggressive measures to reduce the region.
Was 2.2% the annual inflation rate in the currency block in December, according to the European Statistical Office, Eurostat, up from 1.9% in November and the highest since October 2008. Tuesday's offer report no country or product, although economists said the rise was breakdown probably on higher prices for food and energy.
Is the ECB inflation to hold just under 2% over the medium term. Inflation had dipped end 2009 in negative territory as prices drove the global recession and kept wages in check and was less than 1% only in February.
Access thousands of business sources on the free Web not available. More informationBut the euro-zone economy subsequent turnaround led by Germany, reversed that trend. Gross domestic product grew tough in the middle of last year and that the momentum carried out the end of the year. Yet the ECB under President Jean-Claude Trichet, the crisis era has to kept and in the past eight months purchases of government bonds programs in place, including record-low interest rates, plenty loans to banks vulnerable countries like Greece, Ireland and Portugal, that face high debt and lean growth prospects to help.
"When inflation rises, is it harder for Trichet his actions, make to justify", says Charles Wyplosz, Professor of Economics at the Graduate Institute in Geneva.
And get it anytime soon easier. Expected inflation rise Barclays Capital by 2.3% this month and 2.5% in February. "The monetary policy stance on the easy side against these figures sees" Barclays says economist Julian callow.
President Trichet repeatedly cited his inflationary bona fides as a defense by critics in Germany, who say ECB policy will lead to higher prices. Mr Trichet recalled that the ECB made a 1.97% average inflation in the first 12 years, a figure that he often calls a meeting recently with European parliamentarians, where he was. "We had even applause." I was very moved ", said Mr Trichet.
Inflation rates slightly above 2% are still a threat Mr Trichet's track record, economists to noted will say that if food and energy prices are away, core inflation is closer to 1%, not. But risks of a longer rise in prices are mounting. Cold weather has pushed higher energy and food prices and maintained a revival in global growth increased raw material prices for some time. Exchange rates in parts of Europe lead to higher wage demands while Germany a robust economy will be its strongest negotiating workers in many years.
Despite a small increase in unemployment last month - the first since June 2009 - German unemployment remains close to 7%, the lowest in Europe.
As a result, German trade unions demand at the height of the crisis wage gains for job security acting, to enable steeper wage increases to the price increase. German inflation rose last month to a 26-month high rate of 1.9% for regional data last week published.
"Factories have special qualifications for workers, so we have a situation as 2007 again," as workers wages could call premiums from their companies, Wolfgang Nettelstroth, delegate of metals and engineering says Union IG metal and pipe maker Europipe GmBH supervisory board member.
"We wait until the top of the economic situation;" "We now need (an increase) in wages", says Rupert Hammerschmidt, spokesman for the construction and trade union IG Bau.
It is not only on sound economic basis, increasing wages and prices to face. Spain, reported on Monday that inflation closed the year at 2.9% this country despite an unemployment rate of over 20%, suggesting higher tobacco and household power prices and a tax rate increase that took effect in July. "The danger of an increase in wages in line with the recent inflation could be a problem" when you press profits, investment, more setting, says María Jesús Fernández, Economist at Madrid-based think tank Funcas.
The usual response by central banks to such risks would be to tap the brakes by raising interest rates or the withdrawal of other stimulus. Germany, France and other major economies could handle higher prices, but vulnerable countries in southern Europe would cripple and the already high level of indebtedness by Ireland drive costs, economists warn.
That keep no less to deliver despite higher inflation the ECB under pressure to more charm. The ECB has bought already 73.5 billion € ($ 97.93 billion) in government bonds Greece, Portugal and Ireland since May. Many economists say that to come, like must issue billions of euros in new Government bonds, the ECB even exacerbate these purchases Portugal and Spain under pressure in the coming weeks.
"The ECB must ensure that the euro area is to start with;" It is available at major problems the hand "as inflation, Mr callow says."
-David Roman contributed to this article.Write toGeoffrey t. Smith at the geoffrey.smith@dowjones.com
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