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Eurozone Inflation Rises

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Inflation in the Eurozone is showing some clear early signs of accelerating. Today Eurostat released the April Consumer Price Index (CPI) data for zone which contained indications of a definite pick up in the pace of price growth. The CPI year on year came in at the anticipated 0.7% which represents a 20 basis point increase on the March rate of 0.5%. The more volatile month on month reading however fell from 0.9% in March to 0.2% in April, this 0.2% reading had been expected by the markets. The headline Core CPI year on year however has posted the greatest improvement, this is currently reading at 1.0%, a significant increase on the 0.7% recorded last month, markets received a positive surprise as no change from this 0.7% had been expected.
The CPI numbers are not the Harmonized Index of Consumer Prices (HICP) on which the European Central Bank (ECB) basis it’s policy deliberations. The CPI however is very closely correlated with the HICP numbers and as such serves as a very good early proxy indicator to the markets.

It would appear that today’s inflation rise in some way vindicates the ECB’s persistent wait and see stance towards monetary policy. Despite the pick up however it still remains essential that the Bank takes direct action to inject monetary stimulus into the flagging Eurozone economy. The issue at stake is that the increase in the rate of price growth is still only slight. Using the CPI as a measure it can be seen that inflation has remained at or below the 1.0% level for over nine months now. Although price growth activity is remaining clear of deflationary territory there is still damage being done to the recovery by the persistent lack of price inflation. The ECB is strongly rumored to be preparing a rate cut to be implemented at the next Governing Council meeting on the 5th June.

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