German Inflation Increases Rapidly

Today's numbers from the Euro area clearly illustrate why the ECB's decision to cancel its rate hike was highly irresponsible. While money supply growth fell back slightly, from 11.7% to 11.6%, that was still the second highest rate of increase since the creation of the euro, and far above anything consistent in the long run with price stability or financial market stability.

Meanwhile, preliminary German consumer price inflation figures for September show a much larger increase in price inflation than expected. From 1.9% in August to 2.5% in September. The increase in the EU-harmonized measure is even bigger, from 2.0% to 2.7%.

Of course, as I wrote in the recent post "The Inflation Time Bomb", a significant increase was to be expected, yet this was an even bigger increase than I had thought for September alone-remember, some of the effect I talked about won't show up until October and November-. The increase may perhaps be smaller in other parts of the euro area -that remains to be seen- but this clearly raises the risk that November euro area inflation will actually be closer to 3% than 2.5%.

According to all of the official rules the ECB is supposed to follow, they should raise interest rates-and raise them significantly. Yet they don't, because ECB chief Jean-Claude Trichet is a pathetic coward who aren't man enough to stand up to Europe's most prominent economic crank, Nicholas Sarkozy, even though Sarkozy actually lacks the power to harm Trichet.

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