On March 16th 2018, Eurostat is going to release data regarding Eurozone’s Consumer Price Index (CPI) in February 2018. The CPI is a measure of the average change over time in the prices paid by customers for a market basket of consumer goods and services. Low inflation has been one of the problems that the European Central Bank (ECB) is trying to tackle with its implemented monetary policy.
Economists expect Eurostat’s data to show that the Eurozone’s inflation ticked lower in February 2018, coming in at 1.2% on an annualised basis. In January 2018, the Euro Bloc’s inflation stood at 1.3%, on a year-to-year basis, which was the lowest reading recorded since July 2017. A higher than expected inflation reading could likely push the euro’s value up against its competitors, while a lower figure could send the euro lower. Core inflation, which excludes prices of energy, food, alcohol and tobacco, is expected to have remained unchanged at 1.0% in February 2018.
The ECB’s target is to keep the Eurozone’s headline inflation close to 2%. The last time that inflation came close to the 2% target was in April 2017 when it came in at 1.9%, according to a Eurostat survey. The ECB has signalled that it anticipates a slowdown in inflation over the next few months which could be a result of the energy price increase. Economists suggest that low inflation figures of the last few months will give more time to the ECB’s policymakers to consider when to raise borrowing costs and how to further reduce the asset-purchasing programme.
ECB President Commits to Slow Rate Rises
An ING (Internationale Nederlanden Groep) report published on 31st January 2018 had forecast that “while selling price expectations have recently increased to the highest levels in about seven years, it can take a while before this results in high inflation rates and we expect core inflation to increase modestly over the year.”
The ECB’s President, Mario Draghi, reiterated in his speech, delivered in Frankfurt on March 14th 2018, that the Bank’s policy will remain prudent. “We currently see inflation converging towards our aim over the medium term, and we are more confident than in the past, that this convergence will come to pass. But we still need to see further evidence that inflation dynamics are moving in the right direction. So monetary policy will remain patient, persistent and prudent.”
Mario Draghi didn’t neglect to make a reference to the height of the central bank’s interest rates. Draghi noted that “we will maintain the sequencing that is currently set out in our forward guidance, namely our pledge to keep key interest rates at their current levels ‘well past’ the end of net purchases.”
Peter Praet, the ECB’s chief economist, said in a speech on 14th March 2018 that the ECB has made substantial progress regarding the Euro Bloc’s inflation, adding that “our forward guidance on the path of our policy rates will have to be further specified and calibrated as appropriate for inflation to remain on the sustained adjustment path towards levels below, but close to, 2% over the medium term.”
The euro has surged against some of the major currencies over recent months as investors and traders are anticipating that the ECB will put an end to its asset-purchasing programme and will start considering raising borrowing costs. However, the last comments made by the ECB’s policymakers indicate that the Bank is willing to keep the programme running depending on how future economic conditions in the Eurozone will evolve.
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