Stagflation?

We have been told there is no inflation in Europe, only an imploding economy. Back in the Econ 101 class, we learnt that falling economy with inflation, creates stagflation. With inflation “suddenly” on the rise, let’s see if we need reviewing those Econ 101 books. From Bloomberg.

Euro-area inflation unexpectedly accelerated in September as energy prices rose, even as the single-currency bloc’s economy edged toward a recession. Consumer prices in the 17-nationeuro region increased 2.7 percent from a year earlier after a 2.6 percent gain in August, the European Union’s statistics office in Luxembourg said in a flash estimate today. The median forecast of 40 economists in a Bloomberg News survey was for the rate to fall to 2.4 percent.

Inflation has stayed above the European Central Bank’s target of slightly less than 2 percent for almost two years even as the economy has faltered. Surveys last week showed services and manufacturing output fell to a 39-month low in September. ECB Governing Council member Ewald Nowotny and Executive Board member Benoit Coeure have suggested the Frankfurt-based central bank probably won’t lower interest rates at its next meeting on Oct. 4. (full article here.)