In October, as energy prices have surged again, the Euro area is suffering inflation bulging beyond the limits of its ceiling. We know that the ECB is not happy with this development even though most of it is due to oil prices and core inflation seems less of a problem. Still the ECB makes policy without an explicit reference to core prices unlike the Federal Reserve in the US.

Despite a surging Euro that should help to combat any true inflation forces in the Euro area economy, the ECB remains wary of this over top inflation partly because of the ongoing strong money and credit growth in the EMU. So Europeans find themselves in the sticky position of seeing inflation flare, the central bank remain wary, ready to act, even as their currency value remains quite strong and the competitiveness pressures from that strength are squelching growth and killing Europe’s export orders. The European policy dilemma has become an economic oxymoron: the ECB’s own threat to hike rates is further bolstering the euro and further exacerbating the economic problems within the zone as the ECB does nothing and worries about inflation pressure which worsen.