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Low but Stable Eurozone Inflation

James Boston
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Eurostat, the European Commission office of economic statistics, has just published the Eurozone Consumer Price Index Core figures for January (YoY), the headline figure is 0.8% against a forecast of 0.7% and a December figure of 0.8%. Additionally, the equivalent non-Core figure (excluding food, energy, alcohol & tobacco) has just printed at 0.8%, this is against a consensus forecast of 0.8% and a previous figure of 0.7%.

European Central Bank President, Mario Draghi, noted that the ECB is somewhat concerned about the prospects of deflation in the coming months. Speaking after the G20 Finance Minister & Central Banker conference in Sydney this weekend, Draghi stated that the Bank would not hesitate to increase the stimulus should the potential for deflation accelerate.

Draghi attempted to clarify this mixed message by adding that although deflation is a concern it is not the overriding concern of the ECB Governing Council, it is simply that the members remain aware of the risks and remain “willing and ready to take any action in case these risks were to gain strength”. He also stressed that should there be a price stability setback this would force the ECB to take action, possibly by temporarily halting sterilization.

The Euro broke out of its sideways trading pattern this morning on the back of the pleasing German IFO numbers, gaining almost half a figure against the US Dollar to trade in the high 1.3770’s. Sell orders at this level pushed this pair back to the mid 1.3750’s, particularly evident were nerves around the CPI numbers in the light of Draghi’s statement last night. It seems the market changed its outlook on the inflation report, rather than seeking a higher CPI figure as real evidence of growth, investors have settled for stability on the back of the deflation scenario portrayed by the ECB.

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