With the Dow Jones Industrial Average hovering around 19,900 for the first time and Unicredit’s move to shore up its balance sheet supporting banking shares, European markets are on the rise again. Investors have turned positive ahead of the Federal Reserve’s expected interest rate increase on Wednesday, as the Santa rally continues. the final scores showed:

• The FTSE 100 finished 78.15 points or 1.13% higher at 6968.57, its highest close since the end of October
• Germany’s Dax added 0.84% to 11,284.65
• France’s Cac climbed 0.91% to 4803.87
• Italy’s FTSE MIB finished 2.49% higher at 18,827.61, with Unicredit up nearly 16%
• Spain’s Ibex ended 1.58% better at 9331.3
• But in Greece, as a row about its bailout continued, the Athens market dipped 0.1% to 639.71

On Wall Street, the Dow Jones Industrial Average is currently up 105 points or 0.5% at 19.901.

On that note it’s time to close for the evening. Thanks for all your comments, and we’ll be back tomorrow.

Ahead of the US rate decision on Wednesday - with the first hike in a year widely expected - Wall Street is on the front foot again.

The Dow Jones Industrial Average has hit a new intra-day high of 19,915, although it has come off its best level to sit at 19901, up 105 points.

The S&P 500 has added 0.34% to a new high, while the Nasdaq Composite is up 0.37%.

Time for a quick look at the European markets.

The moves by Italian bank Unicredit to bolster its balance sheet have lifted the banking sector, while after the excitement of the Murdoch bid for Sky, Italian broadcaster Mediaset is also in demand after France’s Vivendi said it planned to raise its 3% stake to as much as 20%.

So the pan-European Stoxx 600 index is up 0.74% to an 11 month high. Italy’s FTSE MIB is up 1.4%, while Germany’s Dax and France’s Cac have both climbed 0.51%.

In the UK, the FTSE 100 is 0.6% better after stronger than expected UK inflation figures. Ahead of the expected US rate rise on Wednesday, the Dow Jones Industrial Average is expected to open around 66 points higher.

This new war of words between Greece and the IMF suggests that the Greek debt crisis, rarely dormant for long, is flaring back into life again.

The Wall Street Journal suggests today that early elections are a possibility, if Athens and its creditors cannot agree on what measure to take to ensure Greece is complying with its bailout.

The WSJ says:

The embattled prime minister Alexis Tsipras, who is due to hold talks with the leaders of Germany and France in the coming days, surprised Greeks and creditors last week with fiscal gifts that were widely seen as preparing the option of elections. He promised 1.6 million pensioners a Christmas bonus of between €300 ($319) and €800. He also suspended a planned increase in sales tax for Aegean islands that have received large numbers of Middle-East refugees. EU officials said they would study whether Mr. Tsipras’s promises are compatible with Greece’s bailout commitments.

Snap elections next year would lead to Syriza’s defeat, party officials expect, and a new government led by the conservative New Democracy party. Syriza officials say their goal in possible elections would be to avoid being crushed—which they view as a danger if they hold on too long without concessions from creditors.

Breaking away from UK inflation, because Greece’s finance minister has got in touch with us.

Euclid Tsakalotos isn’t happy with the IMF’s claim last night that it hasn’t been forcing more austerity on Greece.

[As explained earlier, the Fund says it shouldn’t be blamed for asking if the targets agreed between Greece and the rest of Europe are credible]

Tsakalotos’s comments come as monitors arrive in Athens for fresh talks about the country’s bailout programme.

From Athens, Helena Smith reports:

Greece is being boxed into a corner and the International Monetary Fund is economizing with the truth when it says it is not asking for more austerity but rather is the victim of Greece’s bizarre predilection to “agree” to higher primary fiscal targets of 3.5% of GDP.

That is the verdict of Euclid Tsakalotos, the Greek finance minister who in exclusive comments to the Guardian this morning responded witheringly to the Washington-based body’s assertion that Athens will need to make yet more pension and tax cuts after its bailout programme expires in mid-2018 – a demand that no government, after seven years of relentless recession, could accept or survive.
“The Oxford philosopher J L Austen was particularly critical of forms of argument that relied on the following technique: there’s the bit where you say it, and then there’s the bit where you take it back. The IMF is particularly open to this criticism,” Tsakalotos told me.

“In effect it is arguing for Greek pensioners and poorer wage earners to make further economies, while it economizes on the truth.”

The Oxford-educated economist, who was raised in Britain, said in its obsession to make the numbers add up the IMF was now advocating policies that would increase inequality and social exclusion – contradicting its own self-avowed goal of emphasising the importance of inclusive growth.

In their blog overnight, the Fund’s Europe director Poul Thomsen and chief economic counsellor Maurice Obstfeld argued that:

“Greece cannot modernize its economy by boosting funding for infrastructure and well-targeted social programs while exempting more than half of households from income taxes and paying public pensions at the level of the richest European countries.”

Tsakalotos disputes this claim, arguing that:

“Greek expenditure on both pensions and other subsidies is about 70% of the EU average and 52% of that of Germany. Is it likely when around 45% of pensioners receive monthly payments below the poverty line of €665, and almost four million people, that is more than a third of the population, have been classed as being at risk of poverty or social exclusion, that Greece’s main problem is that pensions and tax credit allowances are too generous?

At the same time, the only reason why more people are exempt from paying income tax is that fewer people have decent incomes. So the IMF that is supposedly rethinking the relationship between development and inequality, and is rightly emphasizing the importance of inclusive growth, seems to be unaware that further reducing pensions and the tax credit allowance cannot but fail to increase both inequality and social exclusion. But at least then the numbers will add up.”

The Greek finance minister emphatically denied that Athens had agreed with the demand of its euro zone partners to pursue a primary surplus of 3.5% of GDP in the post-programme period.

Instead, he said the Greek government had offered a compromise solution when euro zone finance ministers held their last meeting on December 5th.
“I laid out the position of the Greek government that high primary surpluses for an economy like Greece and what it has gone through during the crisis make no economic or political sense,” he insisted.

“Some member states were supporting the position that the 3.5% figure should be preserved for ten years; others were working towards a compromise of five years. The Greek position was that neither would work for Greece and we suggested the compromise of going down immediately to 2.5%, but agreeing with the institutions that the one percentage point reduction from 3.5% should be spent entirely on reducing taxes on small and medium sized enterprises, thus enhancing competitiveness and growth. What was the IMF response? The IMF argued within the Eurogroup that: “It doesn’t matter to us whether it is three, five or ten years of high surpluses, we will still need to see more measures to make the numbers add up since we don’t think that 3.5% is achievable without such measures”. It did not bother to address our compromise suggestion.

So Greece has not “agreed” to anything yet. However, it is under intense pressure from its creditors to do so. The IMF has done little to alleviate that pressure. Instead of having the courage of its convictions and helping us reduce the size and/or the timespan of the surpluses, it is putting all the pressure on us to specify new austerity measures for 2019 and beyond.”

Phew! And separately, the Athens government has just suggested that talks with its lenders over its bailout programme could be completed early next month.

Andrew Sentance, PwC’s chief economist, says Britain is now feeling the effect of the plunge in the pound since the Brexit vote.

And further price rises are on the horizon, he warns:

“Inflation is picking up as expected - to its highest level for over two years. Prices in the shops and on the garage forecourt are starting to reflect the big drop in sterling since the EU referendum result. Clothing prices have risen by over 4% since June and motor fuel prices are 7.4% up on a year ago.

“There is more inflation coming through the pipeline. The prices of UK manufactures are already 2.3% up on a year ago and the cost of raw materials, energy and other inputs into the manufacturing process are nearly 13% higher than a year ago. We should therefore expect inflation to rise to close to 3% by the end of next year, which will squeeze consumer spending and slow economic growth. We are leaving behind the very favourable world of near-zero inflation which has benefited consumers over the past couple of years.

Digging into the inflation report, the ONS points out that some tech firms have been hiking their price because of the weak pound.

Here’s the key section:

Recreation and culture:

Prices, overall, increased by 0.5% between October and November 2016, compared with a negligible change a year ago. The upward effect came principally from data processing equipment where prices rose this year but fell a year ago, particularly for peripherals. There have been reports from some IT equipment manufacturers over the last few months of prices being affected by changes in the exchange rate with products generally being priced in US dollars.

The ONS is is absolutely right - Apple raised the prices of several MacBook pros by hundreds of pounds in October, for example.

The report also contains the surprising news that leather sofas have got pricier:

Clothing and footwear:

the upward effect came mainly from clothing (in particular women’s and men’s outerwear) for which prices, overall, increased by 1.6% between October and November this year, compared with a fall of 0.1% between the same 2 months a year ago.

Furniture, household equipment and maintenance:

Prices, overall, increased by 0.5% between October and November 2016, compared with a fall of 0.2% a year ago. Within this group, the largest contribution to the change in the rate came from prices for furniture and furnishings, particularly leather settees. There was also an upward contribution from non-durable household goods such as household cleaner cream and bleach.

Transport:

The upward contribution to the change in the rate came from motor fuels, with petrol prices rising by 1.6 pence per litre between October and November this year but falling by 1.5 pence per litre a year ago. Similarly diesel prices rose by 2.0 pence this year but fell by 0.6 pence a year ago. Fuel prices tend to reflect movements in oil prices and part of the increase in oil prices during 2016 to date can be explained by depreciation of sterling against the US dollar.

Food and non-alcoholic beverages:

Prices, overall, increased by 0.4% this year compared with 0.1% a year ago leading to a small upward contribution to the change in the rate. The main upward effects came from: bread and cereal products such as garlic bread and pizza; and milk, cheese and eggs, particularly milk and yoghurt/fromage frais. These were partly offset by a small downward effect from confectionery.

Paul Sirani, chief market analyst at city firmi Xtrade, also fears that British households face difficult times:

“Inflation has soared to a 25-month high as Brexit uncertainties and sterling’s devaluation continue to filter through the UK economy.

“These latest figures are expected to limit the buoyant consumer spending which has accounted for the resilience in growth since June’s referendum. Meanwhile, the increasing weakness of the Brexit-hit pound is likely to provide households with a painful few months as rising prices take their toll.

The jump in inflation last month may show that the slump in the pound since the EU referendum is now hitting families.

Hannah Maundrell of money.co.uk says it’s a ‘wake-up call’:

“Household finances have been protected against the backlash of Brexit so far but today’s higher than expected figures show it’s finally starting to bite. This is the start of things to come and next year we’ll be battling rising prices head on. This will get worse mid-way through the year as retailer’s forward pricing starts to run out and we have to foot the bill for the real cost of purchases.

“This is an important wake up call and one we should all bear in mind as we head towards the most expensive time of the year. Blow your budget on Christmas now and you could be setting yourself up for a very difficult year ahead. There’s no better argument for keeping tabs on your festive spending and only celebrating with cash you can afford to part with.”

Duncan Weldon of the Resolution Group shows how the cost of consumer goods is now rising, for the first time in two years:

Separate data from Britain’s factories shows that their output costs (what they charge for their wares) jumped by 2.2% in November. That may drive inflation higher, once those goods hit the shops.

Reuters’ Jamie McGeever says it will erode real earnings:

At 1.2%, Britain’s inflation rate is heading back towards the Bank of England’s 2% target:

Almost every category of goods and services pushed the inflation rate up:

On a monthly basis, the consumer prices index rose by 0.2% between October and November - with clothing and food prices up during the month.

Breaking! Britain’s inflation rate has jumped to 1.2% in November, up from 0.9% in October.

That’s the highest level since October 2014, and more than economists had expected.

More to follow...

Milan’s stock market is giving Unicredit’s plan a thumbs-up - shares in the bank are now up 7%.

The race to fend off a crisis in Italy’s banking sector has taken a decisive shift this morning, as the country’s biggest lender unveiled a wide-ranging restructuring plan.

Unicredit will raise €13bn by issuing new shares to investors, clean up the bad debts on its balance sheet and attempt to boost long-term productivity.

It is also planning to “transform” its operating model and “streamline” its products and services, to cut costs.

And that means cutting jobs too -- Unicredit is announcing another 6,500 job cuts today, which means 14,000 staff will have been culled by 2019.

CEO Jean Pierre Mustier, calls it a “pragmatic” plan, that will tackle its exposure to non-performing loans - the bad debts that have build up over many years and never been tackled.

“We are taking decisive actions to deal with our NPE legacy issues to improve and support recurring future profitability to become one of Europe’s most attractive banks.”

Here’s some instant reaction:

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Is inflation back? We’ll find out at 9.30am GMT when new cost of living data is released.

Economists predict that the consumer prices index (CPI) rose to 1.1% in November, up from October, partly due to rising petrol and food prices.

If so, that would suggest that the weak pound is now feeding through to consumers, by pushing up import costs.

A month ago, UK inflation surprisingly dipped, but analysts at RBC Capital Markets believe CPI will bounce back today:

Last month’s unexpected dip back below 1% y/y on the headline CPI measure had a lot to do with the negative contribution from the clothing and footwear sector. The arithmetic suggests the hurdle is low for somewhat of a reversal this month.

Furthermore, it looks likely that petrol prices will also add to the headline annual inflation rate.

With oil producers now working together to stem supply, petrol prices are probably heading higher too.....

Also coming up today

Unicredit, Italy’s largest bank, is announcing plans to restructure itself and raise billions in new capital.

The plan is being unveiled as Rome continues pushing for private investors to rescue Monte dei Paschi, its oldest bank. more on that shortly.

Things are hotting up in Greece too, after the International Monetary Fund denied it was forcing more austerity on Athens.

In a new blogpost last night,top officials warned that the Greece was not implementing the right sort of policies that would actually lead to growth.

In a “Don’t blame us!” moment, Poul Thomsen, director of the IMF’s European department, and Maurice Obstfeld, the fund’s chief economist, wrote:

It is not the IMF that is demanding more austerity, either now or as a means to lower the need for debt relief over the medium-term.

Or to be more direct, if Greece agrees with its European partners on ambitious fiscal targets, don’t criticize the IMF for being the ones insisting on austerity when we ask to see the measures required to make such targets credible.

We’ll watch out for reaction to that, plus all the other key events through the day...