Deflation to Pressure ECB into Action

The European Central Bank (ECB) is expected to come under intense pressure to boost the supply of cheap credit to the eurozone after figures showed a much-feared period of deflation started in December, triggered by falling oil prices.

A flash estimate of inflation found that a dramatic fall in fuel costs following the halving of oil prices dragged prices down by 0.2%.

Separate data for unemployment in the eurozone turned the screw on the ECB board after the figure rose by 34,000 to maintain the unemployment rate at 11.5%.

One analyst described the figures as “dire news” that will put “strong pressure on the ECB to pull the quantitative easing (QE) trigger” at its next meeting later this month.

The ECB has split over the need for QE since the Bank of England, Bank of Japan and US Federal Reserve began buying bonds following the 2008 financial crisis.

Some officials have stressed that the dip in inflation could be a temporary feature and results from a short-term fall in oil prices, which will benefit economic growth over the next year without the need for QE.

Eurostat said that core inflation, which excludes the volatile energy and unprocessed food prices, was stable at 0.7% year-on-year in December – the same level as in November and October. The price of services rose by 1.2% on the previous year.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza