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    ECB doubts about inflation growth?

    On July 2, I mentioned in this blog that the latest data on consumer price inflation in the euro zone were to convince the European Central Bank’s leadership to continue quantitative easing until autumn of the next year. Looks like the ECB report, published on Monday 27 July, confirms that the euro-zone monetary authorities are prepared for the long struggle for the price growth acceleration.

    Analyzing the dynamics of the harmonized index of consumer prices – НICP (it’s the European equivalent of the American Core CPI), the European Central Bank experts are in no hurry to assert that the negative trend of this indicator has changed to positive. HICP growth from 0.6% y/y in January to 0.8% y/y in June (see the Chart), in their view, it is not enough to say that the “bottom” has been reached. To prove their point, they suggest to consider the following:

    • high volatility of the index (it’s hard not to notice the 0.3 pip jump from 0.6% to 0.9% y/y in May) and
    • inadequate statistical base – as noted in the report, “from a statistical point of view” to confirm a stable trend, it should be developing on the average of “seven or eight months.”

    euro-area-core-inflation-rate29-7-15

    Basing on these factors, the ECB recommends to “treat with caution” the HICP growth, registered in the first half of the year.

    However, Todd Buell from Dow Jones, who commented on the ECB report in an article titled “Inflation in the Eurozone suggests the possibility of additional easing steps by the ECB”, in my opinion, is looking too far ahead. Yes, indeed, we cannot exclude that in the second half of the year, inflation in the euro area will continue to decline, and growth in the first half of the year turns out to have been a correction within a downtrend. Yes, it is possible that in this case the ECB will have to increase monetary stimulus. But I think it’s still not the basic scenario.

    I believe that the ECB have just demonstrated a commendable methodological rigor in its report, but its not a sign or an indication that the regulator plans to expand quantitative easing. After all, when the necessary to form reliable conclusions “seven or eight months” pass, it can turn out, that the positive trend is indeed the case. We’ll see …

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

    On July 2, I mentioned in this blog that the latest data on consumer price inflation in the euro zone were to convince the European Central Bank’s leadership to continue quantitative easing until autumn of the next year. Looks like the ECB report, published on Monday 27 July, confirms that the euro-zone monetary authorities are prepared for the long struggle for the price growth acceleration.

    Analyzing the dynamics of the harmonized index of consumer prices – НICP (it’s the European equivalent of the American Core CPI), the European Central Bank experts are in no hurry to assert that the negative trend of this indicator has changed to positive. HICP growth from 0.6% y/y in January to 0.8% y/y in June (see the Chart), in their view, it is not enough to say that the “bottom” has been reached. To prove their point, they suggest to consider the following:

    • high volatility of the index (it’s hard not to notice the 0.3 pip jump from 0.6% to 0.9% y/y in May) and
    • inadequate statistical base – as noted in the report, “from a statistical point of view” to confirm a stable trend, it should be developing on the average of “seven or eight months.”

    euro-area-core-inflation-rate29-7-15

    Basing on these factors, the ECB recommends to “treat with caution” the HICP growth, registered in the first half of the year.

    However, Todd Buell from Dow Jones, who commented on the ECB report in an article titled “Inflation in the Eurozone suggests the possibility of additional easing steps by the ECB”, in my opinion, is looking too far ahead. Yes, indeed, we cannot exclude that in the second half of the year, inflation in the euro area will continue to decline, and growth in the first half of the year turns out to have been a correction within a downtrend. Yes, it is possible that in this case the ECB will have to increase monetary stimulus. But I think it’s still not the basic scenario.

    I believe that the ECB have just demonstrated a commendable methodological rigor in its report, but its not a sign or an indication that the regulator plans to expand quantitative easing. After all, when the necessary to form reliable conclusions “seven or eight months” pass, it can turn out, that the positive trend is indeed the case. We’ll see …

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!


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