Global Prices Fears

Global Price Fears Mount - WSJ.com

• Global Price Fears Mount



• As Food, Raw Materials Soar, Europe's Central Bank Head Warns on Inflation



• Inflation fears—fueled by spiraling food, oil and raw material prices—are mounting around the globe, prompting the head of the European Central Bank to signal that it could raise interest rates in the future even though some countries have been weakened by the Continent's debt crisis.



• Jean-Claude Trichet warned that inflation pressures in the euro zone must be watched closely, and urged central bankers everywhere to ensure that higher energy and food prices don't gain a foothold in the global economy.



• Fast-growing emerging markets such as China and Brazil are seeing rising inflation at home, and their demand for globally traded commodities is pushing prices higher elsewhere.



• annual inflation in China is almost 5%—and a sizzling 9.8% economic growth rate in the fourth quarter triggered fears of more price pressures ahead. Inflation in Brazil is even higher.



• With the global recovery still in its early stages, those moves could accelerate. Higher raw material prices, especially coal and iron ore, are pushing up steel prices across the globe.



• All central banks, in periods like this where you have inflationary threats that are coming from commodities, have to…be very careful that there are no second-round effects" on domestic prices, said Mr. Trichet in his office overlooking Frankfurt's financial district



• Global inflation isn't just coming from volatile commodities that track the ups and downs of the world economy. Fast-growing emerging nations are taking increasingly aggressive actions to beat back rising food prices as they grow more worried about threats to stability



• Last month, inflation unexpectedly jumped to 2.2% in the euro zone from 1.9%, the first time in more than two years it has exceeded the ECB's target of just below 2%. Some economists say it will rise above 2.5% in the next two months.



• Many economists worry that higher interest rates would do further damage in such countries, where the interest burdens on high private-sector debts are closely linked to the ECB's policy rates. Mr. Trichet rejected calls to take special heed of stragglers on the euro zone's fringe.



• Mr. Trichet argues that budget discipline would help growth in Europe more than renewed stimulus, and called on the euro zone's 17 member countries to strengthen "surveillance" of each other's fiscal policies. In Europe, budget discipline benefits growth and job creation by "improving confidence of households, enterprises, investors and savers," said the 68-year-old Frenchman.



• Mr. Trichet's inflation warnings signal a symbolic shift from the crisis mentality that has dominated ECB policy for much of the past three years back to its traditional role—keeping prices stable



• "I do not buy the very simple reasoning that would suggest that pursuing sounder fiscal policy would hamper growth," Mr. Trichet said.

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