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Rapidly shifting and diverging global economic currents have thrust the world's central bankers into the spotlight, as European and Chinese policy makers take bolder steps to stanch their bleeding while their North American counterparts grapple with new evidence of inflation's long-awaited arrival.

The People's Bank of China shook up world financial markets Friday by announcing a surprise cut in its official interest rates, just a day after the closely watched HSBC/Markit China Purchasing Managers' Index indicated that growth in the country's critical manufacturing sector has stalled. The Chinese economy, which was the shining beacon of a struggling global economy just a few years ago, has seen 10-per-cent-plus annual growth rates shrivel to barely over 7 per cent – and falling. Of even bigger concern is that bank lending is drying up, amid nagging fears that the slump in the country's overstretched property market could deteriorate into a U.S.-style collapse.

Meanwhile, European Central Bank President Mario Draghi prepared his biggest guns yet in his battle to halt the euro zone's dangerous slide toward deflation. In a speech in Frankfurt Friday, Mr. Draghi signalled that the ECB is preparing to launch large-scale purchases of bonds – an unconventional monetary policy weapon known as quantitative easing (QE), similar to what the U.S. Federal Reserve has employed over the past several years – if the ECB's current ultra-low interest rates and recent asset-purchase programs don't pull euro zone inflation out of the slide that has sent it to a lowly 0.4-per-cent annual rate.

Deflation stifles economic activity, because falling prices create a disincentive to spend now when prices in the future will be lower, and they drive wages and business revenues downward.

"We will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us," Mr. Draghi said. "If, on its current trajectory, our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases."

The moves by the ECB and PBOC sent stock markets higher, on the hopes that the injection of central bank stimulus would stabilize and revitalize two of the world's key economic engines. European bonds rallied, while the euro fell against North American currencies.

The day highlighted the stark contrast between the pressures facing European and Asian central banks and those that hit their North American counterparts in the past two days: Rising inflation that has strengthened the case for increases in interest rates.

Canada's annual inflation rate took a surprise jump to 2.4 per cent in October, its highest in more than two and a half years. Its so-called "core" inflation rate – which excludes the most volatile items, and is the rate the Bank of Canada watches most closely as the best indicator of underlying inflation pressures – jumped to 2.3 per cent, matching its fastest pace since the end of 2008. The Canadian inflation surprise came on the heels of Thursday's U.S. report, which showed that U.S. core inflation edged up to a higher-than-expected 1.8 per cent in October.

In both cases, economists had thought that slumping gasoline prices (and, in the U.S. case, a surging currency) would dampen inflation. Instead, the numbers suggest that the accelerating U.S. economy, which is driving job and demand growth on both sides of the border, is taking hold and stimulating price pressures. Given that inflation has been unusually low in both countries for years, a return to healthier levels is welcome. It also keeps central-bank interest rate increases on the radar for next year.

The Bank of Canada has resisted reacting to the country's rising inflation for months now, arguing that the upturn is largely transitory. But with the core rate looking more firmly established above the bank's 2-per-cent inflation target, economists were already musing Friday about whether Canadian rate increases might be creeping closer. That prospect helped light a fire under the Canadian dollar, which rose a half-cent against the U.S. dollar Friday, topping 89 cents (U.S.) for the first time since the end of October.

As much as the markets were encouraged by the show of ECB and PBOC muscle, it underlines the seriousness of the problems in Europe and China. The ECB and China have taken stimulus measures already this year, but to little avail. Upping the ante may work, but it won't take long for the markets to turn skeptical. In Mr. Draghi's case, this isn't the first time he has talked tough about doing "whatever it takes" to turn the euro zone around; if his latest words aren't followed by concrete action, expect the markets to cool to the rhetoric in short order.

Japan, meanwhile, reported this week that it had slipped into recession, after massive stimulus measures by its own central bank proved only a fleeting success. Now, Japan faces a snap election and an uncertain future, both politically and economically. The Japan lesson, while incomplete, certainly raises questions about how much faith financial markets should place in central bankers.

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