2017-03-18 — wolfstreet.com
To the ECB's barely contained glee, inflation is back, alive, kicking and biting, in the Eurozone. In February, for the first time in four years, the region-wide 12-month inflation rate reached 2%.... In Spain it was 3% in both January and February, having almost doubled from the 1.6% rate recorded in December, 2016. The last time it was that high was in October 2012. The biggest mover in January were energy prices, propelled by rising global prices as well as regulatory changes, while in February the biggest driver was food prices, with fresh fruit alone surging 7.6%.
If the central bank begins tapering, and investors get wind that it is buying fewer Italian bonds, investors will begin selling, triggering downward spiraling prices and rising yields. In a repeat of 2012, Italy's government will start having difficulty servicing its debt, which will merely serve to exacerbate the sell-off.
Despite the ECB's QE program, the biggest holders of sovereign bonds are still European resident banks, reports Breugel. In other words, the Doom Loop is still intact, just waiting to be set in motion.
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