Inflation in the eurozone slipped back in June, official data confirmed today, as investors get ready to scrutinise comments from ECB president Mario Draghi on the central bank’s stimulus measures later this week.
Annual consumer prices in the eurozone rose 1.3 per cent in June, according to a second reading from Eurostat which came in line with an initial estimate. Inflation fell back from 1.4 per cent in May having spiked at a three-year high of 1.9 per cent in April.
Core inflation, which strips out volatile components and is seen as a more reliable gauge of inflationary pressures, rose from 0.9 per cent to 1.1 per cent in June.
Policymakers at the European Central Bank are due to make their latest decision on interest rates and QE on Thursday. It will be the first time Mr Draghi will be addressing journalists following bullish remarks on the state of the eurozone’s recovery last month, which drove the euro to a seven-month high and sparked a “mini taper tantrum” in the bond market.
Still, ECB-watchers are split on whether the central bank will be delivering more hints about the timing of any scaling back in its bond buying programme this month. A survey of 58 economists by Bloomberg suggests Mr Draghi will hold back on revealing any taper moves until its September 7 meeting, when the ECB will also be releasing its new staff inflation and GDP forecasts.
The ECB is currently buying €60bn of mainly government debt each month as part of its efforts to lift growth and inflation in the bloc.
“There is simply not enough evidence that inflation is picking up and so a change to the inflation risk assessment by the ECB cannot be justified,” said Richard McGuire at Rabobank.
Despite the strength of the eurozone’s recovery – where growth has accelerated and unemployment is at an eight-year low – ECB doves are looking for more signs the rise in inflation can be sustained without monetary stimulus.
Peter Praet, the bank’s chief economist, has warned it is too early for the ECB to declare “mission accomplished” on the recovery. The future path of wage growth is likely to be key in any determination on how to ease back on the aggressive stimulus policies put in place two years ago.
“We need to be patient, because inflation convergence needs more time to show through convincingly in the data”, Mr Praet said earlier this month.
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