The Eurozone Consumer Price Index registered an increase of 1.8% year-over-year in January versus December’s reading of 1.1%. This means the ECB’s inflation target mandate of “close but below 2%” has effectively been satisfied at least a year earlier than intended.

Next comes a series of goal post moving exercises. Policy makers and central bankers in Europe desire continued stimulus pumping to help limp past the banking crisis in Italy, the ongoing debt crisis in Greece, and significant political risk posed by elections in France, Germany, and the Netherlands.

Expect central planners in Europe to disregard the steepening inflation trend for as long as possible. Public discourse will gravitate toward new arguments downplaying headline CPI. These will include shifting focus to core CPI, blaming transitory effects from higher energy prices, highlighting unfavorable base effect comparisons from the prior year, and potentially even fears of trade barriers constraining future global growth. The ECB will get further behind the curve to the chagrin of Germany. Bullish pressure will continue to boil hotter for the euro currency unless politics get in the way.

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