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Eurozone inflation surged past expectations to a CPI of 2.4%, year-over-year, in January. While this isn’t too far beyond the ECB’s target rate of 2.0%, it’s certain to give ECB President Jean-Claude Trichet further inclination to continue his hawkish talk on the matter.The eurozone’s core probably isn’t too concerned about this number with its growth still healthy. But fringe states like Ireland, Spain, Portugal, and Greece are certain to be more alarmed.
Ireland’s 2011 growth targets were lowered today by its central bank from 2.4% to 1%. That means that while the country is making the public austerity cuts prescribed by the EU-IMF agreement for bailout funding, it’s not seeing the private growth take hold it needs to build an export led recovery.
That’s going to lead to low hiring in Ireland and persistently high unemployment rates. Combined with rising costs for core goods like food and fuel, it looks like Ireland’s government is making a conscious choice for stagflation.
Whether or not the public will choose this path at this month’s election remains unknown.
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