Stagflation threatens

2 October 2007 By Ian Campbell

French President Nicolas Sarkozy has repeatedly told the European Central Bank to forget about inflation and worry about the too strong euro. Sarko was half right. The euro looks to be depressing growth but inflation has worsened. It s a poisonous mix.

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The NTC Economics flash purchasing managers index (PMI) for services in the 13member eurozone fell to 54 in September, the lowest level since August 2005, from 58 in August. This was the biggest monthly fall in the nineyear history of the index. The manufacturing PMI fell to 53.2 in September from 54.3 in August, its lowest point since November 2005. German retail sales, seasonally adjusted, fell by 1.4% in August from July.

Inflation in the eurozone rose from an annual 1.7% in August to 2.1% in September, according to Eurostat's flash estimate.

Unemployment in the eurozone remained at 6.9% of the workforce in August, for the third month running. Unemployment has dropped from a peak of 8.9% of the workforce in late 2004.

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