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The rise of Euro inflation

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The Euro area saw rising inflation - core inflation picked up to 0.8% yoy (even though core inflation has an embedded energy component). Draghi will doubtless use the negative headline CPI to justify his plan to buy Italian government bonds (and maybe other government bonds).

Some commentators have suggested that the negative Euro headline CPI may lead to consumers delaying purchases. This is nonsensical. Consumers can distinguish a relative oil price decline from a general downwards price spiral, and will not delay purchases.

The US Federal Reserve minutes were explicit in saying that current core inflation levels could justify rate increases, and lower oil prices could stimulate the economy. The message was very much consistent with a mid-year rate increase. No change is expected from the Bank of England today.

German Manufacturing orders data from November are due, with growth likely to slow a little. Euro consumer and business sentiment data are also expected, laden with the health warnings that survey based data has to have. The US gives us consumer credit.

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