Back
7 Jan 2015
Cheap oil pushes Eurozone inflation into negative territory – ING
FXStreet (Barcelona) - Teunis Brosens, of ING, notes that the collapse of the oil price pushed Eurozone inflation into negative territory in December, and it looks set to stay sub-zero in the coming months.
Key Quotes
“According to a flash estimate by Eurostat, headline HICP-inflation in the 18-country region dropped to -0.2%YoY from 0.3%YoY a month earlier, against a consensus of a -0.1% drop.”
“The sharp decline was mostly driven by a sharp fall in energy inflation to -6.3%YoY from -2.6%.”
“Fluctuations in energy and food prices should in theory not worry the ECB, as long as they do not feed through in core inflation and inflation expectations are not significantly affected. A sliver of good news therefore is that core inflation nudged op a tenth to 0.8%YoY."
"But with substantial spare capacity in the Eurozone, there is no reason whatsoever to assume this is the beginning of a new upward trend."
"On the contrary, second round effects of the sharply lower oil prices could provide further downward impetus in the months ahead.”
“The ECB’s preferred measure, the 5y/5y forward inflation expectation derived from inflation swaps, has fallen to 1.6% now. While that may still look acceptable, the 2y/2y forward inflation expectation looks far more worrying, having fallen to just 0.7% from 1.5% only half a year ago.”
“According to the ECB’s own logic, with sub-zero inflation, no sign of a material pickup on the horizon, and inflation expectations de-anchoring, there is a compelling case for further monetary easing. The question no longer seems “if” the ECB is going to announce QE on 22 January, but “how” it will be tailored.”
Key Quotes
“According to a flash estimate by Eurostat, headline HICP-inflation in the 18-country region dropped to -0.2%YoY from 0.3%YoY a month earlier, against a consensus of a -0.1% drop.”
“The sharp decline was mostly driven by a sharp fall in energy inflation to -6.3%YoY from -2.6%.”
“Fluctuations in energy and food prices should in theory not worry the ECB, as long as they do not feed through in core inflation and inflation expectations are not significantly affected. A sliver of good news therefore is that core inflation nudged op a tenth to 0.8%YoY."
"But with substantial spare capacity in the Eurozone, there is no reason whatsoever to assume this is the beginning of a new upward trend."
"On the contrary, second round effects of the sharply lower oil prices could provide further downward impetus in the months ahead.”
“The ECB’s preferred measure, the 5y/5y forward inflation expectation derived from inflation swaps, has fallen to 1.6% now. While that may still look acceptable, the 2y/2y forward inflation expectation looks far more worrying, having fallen to just 0.7% from 1.5% only half a year ago.”
“According to the ECB’s own logic, with sub-zero inflation, no sign of a material pickup on the horizon, and inflation expectations de-anchoring, there is a compelling case for further monetary easing. The question no longer seems “if” the ECB is going to announce QE on 22 January, but “how” it will be tailored.”