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Germany’s  Finance Minister is worried the world may face an inflation crisis. Up to now, prices are just going down in this crisis. This week’s inflation figures across the world can tell us if this prices are moving, and if interest rates will change a direction.  

Peer  Steinbrueck, Germany’s Finance Minister says that the current crisis is far from over, and the wild spending will spark an inflation crisis:

‘There’s so much money being pumped into the market that there could be a threat of an overloading of the capital markets when the economies start expanding again and a threat of worldwide inflation,’ he added.

Currently, prices aren’t rising. In fact, deflation is what worries many governments and economies. In his country, Germany, and in the whole Euro Zone, prices are hardly moving. European CPI is at a level of 0.6% – very low. Too low.

In the US, the last CPI recording stood on 0.2% (monthly). Quite good. In New Zealand, the last quarterly CPI was negative: prices fell by 0.5%. Japan is suffering from deflation for a very long time. Only Britain sees prices rising nicely, but still very far from inflation.

The price of oil is drifting around $50 a barrel, and also the price of has stabilized despite the ongoing crisis. The credit crunch has stopped the world from buying, and prices don’t go up. Well, except for Zimbabwe…

This week, inflation figures are released around the world. In Europe, they’ll be released on Thursday, and a day earlier in the US. See the Forex Weekly Outlook for a full scan of CPI releases.

So, we’ll be able to see if  Steinbrueck is talking about a hypothetical point in the future, or if he’s smelling something. If prices begin rising, interest rates can start going up. In some places, they can’t go down anymore…

In the long run, economic revival that is pushed by excessive spending (stimulus plans) can cause prices to rise, but this seems to far.  

In the forex market, high inflation means an upcoming rise in interest rates – stronger currency. If inflation returns to the scene, we’ll have to watch those CPI releases more closely.

Further reading: Inflation Becoming Irrelevant in Forex.