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EZ inflation has investors scratching heads

Friday, February 28, 2014 - 01:24

Feb. 28 - Euro zone inflation data comes out higher than expected - sending shares down, the euro up and opening a whole new guessing game about what the ECB might do at its policy meeting next week. David Pollard reports.

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It was a case of a little going a long way. Euro zone inflation came in just 0.1 per cent ahead of expectations, at 0.8 per cent. That was enough to send the euro to its highest level this year. Shares - which had been buoyed by expectations of an ECB rate cut or liquidity injection next week - took a dive. Could the markets have over-reacted? Trevor Williams of Lloyds. SOUNDBITE, (English) Trevor Williams, Chief Economist, Lloyds Bank, saying: ''This is an unchanged number. It's not an improvement, I would argue, in the inflation rate, if improvement is it trending back towards the authorities' target rate of at or just under two per cent.'' ECB chief Mario Draghi has been under pressure to loosen monetary policy to boost a fragile recovery in the euro zone. And has been denying that deflation's a threat. The classic deflation telltale of households deferring purchases is not evident, he's claimed. The numbers may offer a reprieve for Draghi - but only for now. SOUNDBITE, (English) Trevor Williams, Chief Economist, Lloyds Bank, saying: ''Over the next few months, our monthly calculations suggest that the inflation rate could fall as low as half a per cent, in which case I don't think the pressure's gone away in the immediate future. It does appear to have gone away for now.'' Less likely next week perhaps, a rate cut can't be ruled out entirely. But with the ECB's main rate at a rock bottom quarter of a percent, those that do see a cut coming forecast rates to be shaved by as little as one twentieth of a per cent.

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EZ inflation has investors scratching heads

Friday, February 28, 2014 - 01:24