Page 24 - ARUBA TODAY

Thursday 5 January 2017 BUSINESS
A24

Eurozone inflation spikes to highest in over 3 years

PAN PYLAS With the inflation rate still up 2.5 percent in the year trend we expect that the appear greater. Defla-
Associated Press short of that target, the to December compared ECB’s preference will be to tion has proven difficult to
LONDON (AP) — Europe central bank is unlikely to with a 1.1 percent drop in maintain the policy course reverse, as evidenced by
appears to have seen off give up on stimulus any- November. In December, ... and ‘look through’ the case of Japan over the
the deflation bugbear that time soon. the price of crude oil rose energy-influenced price past couple of decades.
has stalked it for the past Though the ECB can argue above $50 a barrel — from developments in coming Ben May, lead eurozone
couple of years. months,” said Cathal Ken- economist at Oxford Eco-
Consumer prices across nedy, European economist nomics, conceded that
the 19 countries that use at RBC Capital Markets. higher inflation could
the euro grew in Decem- In the near-term, higher weigh on eurozone eco-
ber at their fastest rate headline inflation could nomic activity in coming
since Sept. 2013, official fig- weigh on economic ac- months, while noting that
ures showed Wednesday. tivity if wages don’t keep it may “trigger some posi-
A surge in oil prices con- up, as people’s income tive developments” such
tributed most to the near- won’t go as far. However, as higher wages in econo-
doubling in the annual in- a steady level of inflation mies like Germany where
flation rate to 1.1 percent is considered good for an unemployment is low.
from the previous month’s economy as it can drive “We think that the euro-
0.6 percent. up wages and promote zone economy is now in
Though higher inflation can innovation and invest- a strong enough position
eat into consumer spend- ment by firms. It can also to weather this shock,” he
ing, it can also help push A child laughs as she tries to catch soap bubbles created by a reduce debt levels for firms said. “Indeed, the region
up wages and stimulate street artist, in Lisbon’s Comercio square, Tuesday, Jan. 3 2017. and countries in real terms. may now be in a position
economic activity in a re- Associated Press That’s certainly a better where a period of moder-
gion that has largely stag- prospect than prices falling ate inflation is more de-
nated. that its policies, which have below $30 a year earlier — over a sustained period, a sirable that a further sus-
As such, the figures are included cutting interest after the OPEC oil cartel phenomenon known as tained bout of ‘noflation’.”
likely to provide some relief rates and injecting billions and other nations agreed deflation that has haunt- The view in the curren-
to policymakers at the Eu- into the financial system, to cut output levels. ed Europe in the past few cy markets was broadly
ropean Central Bank who have shored up the econ- When energy costs are ex- years. Lower prices may positive and the euro re-
have resorted to a raft of omy, the main contributor cluded, inflation remains sound good and have in couped some of its recent
stimulus programs to get to the December spike in muted. The core rate, fact been a boon to Euro- losses, which had seen it
inflation back toward their inflation was out of its con- which strips out the vola- pean consumers recently fall to 14-year lows against
target of just below 2 per- trol: energy prices. tile items of alcohol, en- as they were due to the the dollar. Europe’s single
cent, considered most suit- Eurostat, the European ergy, food and tobacco, slide in oil prices — money currency was up 0.7 per-
able for a healthy econo- Union’s statistics agency, rose to only 0.9 percent saved filling up a car or on cent at $1.0477.
my. said energy costs were from the previous month’s home heating could be A separate survey Wednes-
0.8 percent. That suggests spent elsewhere. day provided evidence
that high unemployment The problem arises when a that the eurozone econo-
in many parts of the euro- fall in prices endures. That my gained momentum at
zone following the region’s can choke the life out of the end of 2016.
debt crisis continue to an economy if consumers According to research firm
weigh on wage demands put off purchases in the IHS Markit, eurozone busi-
and consumption. hope of future bargains. ness activity grew in De-
“Despite headline inflation It can erode profits and cember at its fastest pace
returning to an upward make governments’ debts since May 2011. The com-
pany’s composite pur-
chasing managers’ index
— a broad gauge of busi-
ness activity across the
manufacturing and ser-
vices sectors — rose to 54.4
points in December from
53.9 the previous month.
Anything above 50 indi-
cates growth.
It said December’s level
points to quarterly eco-
nomic growth of 0.4 per-
cent — better than the
eurozone performed for
most of 2016 but modest
compared with the United
States.
IHS Markit’s chief busi-
ness economist, Chris Wil-
liamson, said it’s too early
to say whether the im-
provement represents the
“much-needed spring-
board” because political
uncertainty looms.q