On the up again?
Last week, while reading my favourite English-language newspaper, the Financial Times, I nearly burst out laughing in the office. Who says that finance isn't fun?
As Tom Jones might say, it's not unusual for me to laugh or smile while reading the "FT". The newspaper has two particular amusing columnists — Lucy Kellaway and Robert Shrimsley — who are always worth a read.
What was unusual, though, was that it was a news story in the FT that amused me — a news story about inflation rising in the eurozone.
Now, you might think that inflation isn't a barrel of laughs, particularly when it is going up. That's where you are mistaken.
The headline of the story was this: "Soaring inflation sparks dilemma for ECB". Soaring inflation? The last time I looked, the European Central Bank was pumping money into the markets like crazy in an attempt to get inflation up to its target of just under two per cent a year.
Anyway, the story was that annual eurozone inflation had risen from 0.6 per cent in November 2016 to 1.1 per cent in December 2016, its highest level since 2013.
When I hear about inflation "soaring" — a word that means flying or rising high in the air, or rising above the usual level — I tend to think about Britain in the 1970s, when inflation was running at more than 20 per cent a year. Or I think about hyperinflation in countries such as Germany in the 1920s or Zimbabwe in 2008 and 2009.
Instead, what we had was an increase of 0.5 percentage points in eurozone inflation between November and December 2016, which doesn't seem like much of a deal.
OK, it certainly is an increase above the usual level that we've seen in recent years. And if you want to look at it differently, it also amounts to more than a doubling of the inflation rate — an increase of 120 per cent, to be precise. So I guess "soaring" isn't quite as laughable as it first sounded.
On the other hand, most of the increase was the result of the rise in oil prices. The change in "core inflation", which strips out the changes in volatile energy and food prices, was much less dramatic — from 0.8 per cent in November to 0.9 per cent in December. Not much soaring going on there, eh?
So what's the dilemma for the ECB? Well, with eurozone inflation starting to rise, calls are getting louder for the ECB to cut back on its monetary expansion and start thinking about raising interest rates.
These calls are particularly loud from politicians, economists and bankers in Germany, where annual inflation is running at 1.7 per cent and there are elections in September. Many savers have lost out under the low-interest regime and could take their frustration out on the government.
The ECB, however, has to look at the eurozone as a whole and set its policy accordingly. And with eurozone inflation still well below target, that would mean no rises in interest rates for a while.
But with pressure for a rate rise increasing from Germany, the eurozone's most powerful economy, that's a dilemma indeed for the ECB. And it's one that is no laughing matter.