Consumer Price Index as Expected in the European Union
- Consumer Price Index comes out as expected
- CPI shows that the ECB target still not been reached
- Should continue to keep monetary policy loose
During the early hours of Friday, the European Union released the Consumer Price Index figures year-over-year, and they came out as expected. The Final CPI year-over-year was 0.7% and the Final Core CPI figure came out at 1.1%, which is just under the inflation target set by the European Central Bank. Considering this, the market will anticipate that the monetary policy coming out of the ECB is going to continue to be very loose.
The anticipation of monetary policy
Market participants will be expecting a loose monetary policy, and this could weigh upon the Euro going forward. The largest measure of a currency and its strength will be against the US dollar. The EUR/USD pair has been in a downtrend for some time and it looks as if there will be more of the same going forward, as the ECB is in no position to start raising rates or even remotely tightening monetary policy.
Beyond that, some of the other economic figures out of the European Union have gotten a bit better, but they should probably be classified more along the lines of ‘less bad’. During the same day, the Italian Trade Balance figures came in at €2.78 billion, instead of the expected €3.54 billion. While not a major concern, these figures show the continuation of the overall malaise that we see on the continent.
Beyond that, there are a lot of data mismatches as some economies are outperforming others. This one of the biggest problems that the European Union consistently has as, without federalism, it’s difficult to wrangle monetary policy in one direction.
When it comes to the EU, the German economy needs to be paid special attention to. The German economy relies heavily on export and, if Germany can start to send more exports to other places around the world, the European Union will be a major beneficiary. That being said, the rest of the world does seem to be slowing down a bit and a variety of external issues are influencing the export market.
If Donald Trump does, in fact, levy more tariffs on the European Union, especially along the lines of the automobile industry, that could be another reason for the ECB to be sitting on the sidelines. It could even lead to them loosening the monetary policy further as more bond buybacks come into the picture. At this point, Europe seems to be doing slightly better than it was but is still a long way away from strengthening.