Weak inflation data is hurdle on ECB’s way out of easy money

por · 30 de abril de 2018

FRANKFURT/BERLIN – Consumer prices in Germany, Italy and Portugal grew less than expected in April, data showed on Monday, raising fresh questions about the European Central Bank’s plans to wean the euro zone off its supply of easy money.

The ECB has been widely expected to wind down its 2.55 trillion euro (2.24 trillion pound) bond-buying programme by the end of the year and its President, Mario Draghi, expressed confidence in the economic outlook after last week’s policy meeting.

But a string of softer-than-expected economic indicators since the start of the year has been casting a shadow on the ECB’s plans, which are predicated on euro zone inflation hovering around 1.5 percent in the remainder of the year.

“The market is starting to doubt and the (economic) numbers confirm that,” Kenneth Broux, an analyst at Societe Generale, said. “You’ve seen negative surprises throughout Q1 and you need to see the trend turn.”

Price growth in Italy and Portugal was a paltry 0.6 percent and 0.4 percent respectively this month, according to preliminary estimates published on Monday.

Germany’s reading was closer to the mark at 1.4 percent but still came in below analyst expectations, raising the prospect of a new disappointment when data for the euro zone as a whole is published on Thursday.

“For the ECB, today’s German inflation data will not make life any easier,” Carsten Brzeski, an economist Dutch bank ING said.

“The decision on the nitty-gritty details of QE tapering could become complicated.”

One key issue will be the uneven picture in different countries, with Germany closer than most to the ECB’s target of just under 2 percent.

ECB policymakers from Germany and the Netherlands have long called for a rapid winding down of bond purchases, which would then pave the way for higher interest rates.

“We’re definitely in the comfort zone for consumers,” Uwe Burkert, an economist at German regional bank LBBW, said.

Yet Spanish inflation data had disappointed on Friday at 1.1 percent, while France provided the only positive surprise with a reading of 1.8 percent.

Following the mixed readings, economists at Barclays cut their euro zone inflation forecast for April by 10 basis points to 1.3 percent on Monday, bringing it in line with the median estimate in a Reuters poll of economists.

Not all data was weak on Monday, however, with loans to euro zone households growing at their fastest pace since 2008 at 3 percent year on year in March, and credit to companies also accelerating to 3.3 percent.

But a broader indicator of money circulating in the currency bloc, which often foreshadows future lending activity, slowed sharply, likely reflecting reduced bond purchases from the ECB, and German retail sales unexpected shrank.

Source: reuters