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Economy in Brief

Battle Of The Bulge?...Belgian CPI Bulges
by Robert Brusca   December 23, 2010

The Belgian CPI continues to run a bit hotter than the CPI for the Euro-Area as a whole. The 0.5% rise in December is high and the 12-month pace of 3.1% is uncomfortable. Over 12 months to Oct the EMU pace is 1.9%. On that same horizon the Belgian rate is also well ahead of EMU by one percentage point- a key one percentage point.

Rents and transportation are accelerating in Belgium. Energy costs seem to be a main reason for this acceleration. Food, clothing, health care, education and leisure & culture costs are decelerating in the recent three-months compared to six months.

We can see that while the Belgian CPI is 'different from' the EMU HICP the two are highly similar and have sent very similar messages to the ECB. The main message here is that the ECB is on a collision course with policy. The pressure to raise rates looks like it will come sooner rather than later, meanwhile pressures on sovereign borrowers continue to be intense and issues surrounding economic and financial health continue to be erratic. From the former perspective the time to hike rates is at hand; from the latter, it is still a long ways off.

The question on the table is how the ECB will navigate the hard money pressures to keep inflation down and to hike rates against the pressures and needs of a real world economy which is not strong and in fact is struggling in much of the euro-area? If energy alone is making the HICP rise will the ECB respond to that? If inflation is more of a real problem in Germany but not elsewhere will the ECB respond to that? What if finical crisis flares or seems to be on a razor's edge? What road will the embattled ECB take?

Over 12-months the HICP is still below the ECB maximum of 2%. But the ECB has let some minor sorts of overshoots go by the boards in the past when there were special reasons. And there are special reasons now. But we still don't have a good fix on where the ECB will place a trigger point for action or what sort of economic/financial troubles in the Zone might keep it on the sidelines even if inflation passed a potential trigger point. The zone faces some really tough choices but then again it could wind up dodging some of these bullets and escaping without being hemmed in – if it's lucky. The recent offer by China to help the Zone out of its mess might offer just that flexibility...if it does not come with too-many strings attached. The European question is still in play. Belgium's inflation performance suggests that the European growth/inflation quandary remains a hot topic.

Belgian CPI Trends
  Month-to-Month Saar
  Dec-10 Nov-10 Oct-10 Sep-10 3-Mo 6-Mo 12-Mo
CPI-All 0.5% 0.1% 0.3% 0.7% 3.6% 3.3% 3.1%
Food& Bev 0.5% -0.1% -0.2% 0.4% 0.8% 2.4% 2.7%
Clothing and Footwear 0.0% 0.0% 0.1% 0.1% 0.5% 1.3% 0.6%
Education 0.2% 0.1% -2.2% 0.0% -7.3% -3.0% -0.5%
Rent 0.1% 0.1% 0.1% 0.0% 1.4% 1.2% 1.0%
Health 0.2% 0.1% 0.1% 0.6% 1.5% 2.1% 2.6%
Misc 0.3% 0.2% 0.3% 0.4% 3.4% 2.6% 2.1%
Leisure&Culture -1.4% -0.3% 0.1% 0.2% -6.4% -2.7% -0.3%
Transport 1.5% 1.2% 0.8% 0.6% 14.7% 9.0% 6.0%
EMU CPI-all #N/A 0.2% 0.4% 0.1% 2.9% 2.2% 1.9%
Belgian rate lagged one month for EMU comparison 4.3% 2.4% 2.9%
3-Mo, 6-Mo and 12-Mo Annual rates are from one month older data
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