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Is euro zone inflation a danger?

Monday, June 30, 2014 - 01:48

Euro zone inflation stayed at 0.5 percent in June, marking the 9th consecutive month of below-target growth. Despite previously marking a 'danger zone' of below 1 percent, ECB chief Mario Draghi is not expected to act just yet. Ivor Bennett reports.

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It's a problem that just won't go away. Low inflation still dogging the euro zone's stuttering recovery. Consumer prices stayed steady in June to give the European Central Bank some brief respite. But at 0.5 percent, it's is still well below the bank's target of just under 2 percent. ECB Chief Mario Draghi introduced a raft of drastic measures at the bank's last meeting, including a negative deposit rate. But Commerzbank's Michael Leister predicts it'll words rather than actions this time around. SOUNDBITE (English) MICHAEL LEISTER, SENIOR INTEREST RATES STRATEGIST, COMMERZBANK, SAYING: "Draghi has been making clear very much that for the ECB it's more the inflation expectations that are the relative metric rather than short term fluctuations in HICP. So in that sense, he will again point out that basically the ECB still has a lot of tools left, i.e. euro QE, but there will be nothing tangible on Thursday." According to Draghi, the risk of outright deflation in the euro zone doesn't exist. But bailed out Greece, Portugal and Cyprus did experience it in May. And June marks the 9th straight month with an inflation rate within the bank's own danger zone of less than 1 percent. BNY Mellon's Simon Derrick. SOUNDBITE (English) SIMON DERRICK, CHIEF FX STRATEGIST, BANK OF NEW YORK MELLON, SAYING: "I do think it's still too close for comfort and I think the main reason for that is actually we still have a euro that relatively speaking is too strong for the euro zone. As a result of that continued relative euro strength certainly against the dollar I think that at some point but not at this meeting there is a likelihood of fresh QE out from them." Rhetoric seems enough to keep markets under control for now. But there are signs it might not last - safe haven German bunds dropped again - to the one year low they hit last week.

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Is euro zone inflation a danger?

Monday, June 30, 2014 - 01:48