×

Eurozone Inflation Considered

Euros at an angle
Thomas Northcut | Photodisc | Getty Images
Euros at an angle

The annualized rate of inflation in the Eurozone for December came in today at 2.2 percent.

That number is slightly ahead of estimates—expectations were 2.1 percent—and also slightly higher than the previous annualized rate for November, which was 1.9 percent.

Izabella Kaminska, of the Financial Times blog Alphaville, takes up the story. As she points out:

"The really interesting thing to note, though, is that this is the first time since November 2008 that the inflation figure has breached the ECB’s price-stability target, which is just below 2 per cent."

Not only has the number breached the price stability target—and come in over 15% higher than the annualized number for the previous month—it has exceeded the year-over-year rate of inflation.

RBC Capital Market’s James Ashley writes:

"[it] also marks the highest y/y reading since October 2008. Last month, the ECB projected euro area average inflation of 1.8 percent in 2011 and 1.5 percent in 2012."

But let's not lose our heads: These numbers are hardly catastrophic.

But they do raise questions about the sustainability of the current levels of interest rates set by the ECB to stimulate European economic growth.

Alphaville quotes Marco Valli of the Italian bank UniCredit:

"Not a game changer but, together with a narrowing output gap and (slowly) recovering lending cycle, another piece of evidence that suggests that interest rates cannot be left at the current emergency level indefinitely. We see the first hike in the refi rate at end-2011, with full-allotment still in place to continue providing support to the fragile banking sector of the eurozone periphery."

These are questions we haven't yet had to consider in quite the same way here in The United states.

In the U.S., headline inflation has not crept into our core inflation numbers.

(From the FOMC meeting minutes, from December 14, 2010: "Longer-term inflation expectations have remained stable, but measures of underlying inflation have continued to trend downward.")

Will discussions of this kind be a harbinger of things to come if we begin to see similar price pressures in the United States? Let's hope not.

______________________________________________________

Questions? Comments? Email us atNetNet@cnbc.com

Follow NetNet on Twitter @ twitter.com/CNBCnetnet

Facebook us @ www.facebook.com/NetNetCNBC