venerdì 30 agosto 2013

Euro zone CPI calls for an ECB rate cut

Flash August Euro CPI decelerated from 1.6% y/y to 1.3% y/y, lower than market expectations at 1.4% y/y. Looking at the details of the release, most of the fall can be attributed to the energy component which decelerated from 1.6% y/y to -0.4% y/y while the remaining components remained broadly stable. Core CPI remained unchanged at 1.1% y/y.
With energy slowdown likely to be temporary, CPI could rebound to 1.5% y/y by year-end.
However, inflationary pressures are likely to remain subdued in the months ahead as indicated by latest ECB monetary aggregates figures. Money supply M1 growth rate fell from 7.5% to 7.1% and M3 2.4% to 2.2% y/y. The following data suggest that CPI should remain weak in the next few months.
Low inflationary pressures should push the ECB to further ease monetary policy as soon as next week. Indeed ECB is missing both the target of CPI below but close to 2% and on M3 growth rate of 4.5%.
However we do not expect the ECB to ease monetary policy unless Euro zone economy falls back in recession.

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