The rising euro is taking more wind than expected out of eurozone inflation’s sails

Until now, economists have not been particularly worried by the euro’s rise since the beginning of the year, given that business trends and confidence in future growth had gained momentum. At less than $1.20 since mid-summer, the euro is trading well below certain past levels and also more in line with its purchasing power parity. Recent data indicate, however, that the single currency’s appreciation has had a significant impact on corporate margins and on import prices, resulting in a reduction of core inflation rates in the eurozone. This is relatively disconcerting at this stage in the business cycle and may be behind the sluggish stock markets of the past few months.

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