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28 Feb 2014
Eurozone inflation hold eases pressure on ECB
FXStreet (London) - The flash Eurozone inflation number has taken some pressure off next week's European Central Bank meeting. However, the slowing of Eurozone disinflationary pressure may be short-lived.
Headline HICP inflation held at 0.8 percent, resisting consensus expectations for a decline to 0.7 percent, with food and energy price slowdowns offset by an unexpected increase in the core rate, climbing from 0.8 percent to 1.0 percent.
However, there are plenty of reasons to believe this was a brief respite before disinflationary pressures continue. Data released earlier this week shows the Eurozone is still experiencing a business-harming contraction in private lending. Labour markets remain weak, with unemployment for the Euro area as a whole running at 12.0 percent with little downside pressure, while upside wage pressures remain extremely weak.
Despite this, it's likely that the ECB will hold fire next week. Given it has very few bullets left in the chamber, the central bank will probably wait until we see resumed disinflation before it institutes a largely psychological cut of the refinancing rate. However, it would need conditions to deteriorate further before ECB dissenters can be cajoled into move into negative deposit rates.
Headline HICP inflation held at 0.8 percent, resisting consensus expectations for a decline to 0.7 percent, with food and energy price slowdowns offset by an unexpected increase in the core rate, climbing from 0.8 percent to 1.0 percent.
However, there are plenty of reasons to believe this was a brief respite before disinflationary pressures continue. Data released earlier this week shows the Eurozone is still experiencing a business-harming contraction in private lending. Labour markets remain weak, with unemployment for the Euro area as a whole running at 12.0 percent with little downside pressure, while upside wage pressures remain extremely weak.
Despite this, it's likely that the ECB will hold fire next week. Given it has very few bullets left in the chamber, the central bank will probably wait until we see resumed disinflation before it institutes a largely psychological cut of the refinancing rate. However, it would need conditions to deteriorate further before ECB dissenters can be cajoled into move into negative deposit rates.