Howard Archer, chief European economist at IHS Global Insight, said he
believed the ECB would "sit tight for now at least". The ECB last month took its
deposit rate into negative territory - effectively charging lenders for parking
money with the central bank - a move which may take time to take a toll on the
economy. Nonetheless he added that continued low inflation meant that
"expectations will likely persist that the ECB will ultimately have to take
further action". Within the headline inflation figure, price drops in
vegetables, telecommunications and fruit offset rises in the cost of tobacco,
restaurants and cafes and rents. ...Consumer prices in the eurozone rose 0.5pc
in the year to June, unchanged from a month earlier, according to latest
official figures. Core inflation, which strips out the more volatile elements
of energy, food, alcohol and tobacco, however edged up to 0.8pc in the year to
June, from 0.7pc a month earlier. The increase in core inflation is likely to
ease fears that the bloc could enter a deflationary spiral and ease pressure on
the European Central Bank to unleash further stimulus. How about this! Inflation will likely dip by another 0.1% over July-August, cheaper food, less energy but come up again around September-October (first heating needed). This may well just allow the ECB, especially if there is no further deceleration in German growth and FRITSP flatten the tiniest bit, to avoid physical QE.Germany will not support QE, other than with meaningless,metaphysical mumblings, but the slither of improvement and the national preponderance of Germany, well understood by JUncker 87, will allow Germany to accelerate 'more Europe' in terms of 3% budget (that France keeps delaying), a real banking union with realish stress tests, some form of not too debilitating FTT, common EZ business taxes etc. I think a short period of very, very slight improvement will cause a 'more Europe' drive and stop QE being an issue. The 'more Europe'will show us, notably in France, Italy and Portugal, how much political distrust, intolerance and national anger the euro has caused.
However, the EZ inflation figure of 0.5% is meaningless as the EZ is NOT
one country. What I want to see is the inflation rate for each EZ member state
to see whether the 0.5% rate hides wide variations in inflation, as I suspect it
does. What, for example, is the inflation rate for the EZ if you take Germany
out of the equation? If Germany, for example, has a lower rate of inflation
than most other EZ countries, then we can conclude that Germany is becoming more
competitive which would be bad news for the poorer member states trying to
compete with Germany in the single market. But if other poorer EZ countries have
a lower rate of inflation or even falling prices compared to Germany that too is
very bad news for poorer EZ countries as that would mean falling tax revenues,
falling wages and falling purchasing power in the economy and all that would
combine to increase budget deficits and pressure on national banks. What is
needed from an economic point of view for the EZ is for Germany to have price
inflation of 4% and everyone else to have price inflation of 2% for several
years. That won't happen and therefore the gap between the richer member states
led by the economic powerhouse of Germany over the poorer members will continue
to get progressively bigger year after year. It is worth noting hat the gap
between Germany and the poorer member states was closing before the advent of
the Euro and that the Euro has permanently reversed this
process. It is worth bearing in mind that German inflation rose from 0.6% to 1.0%. Across the majority of the euro-zone inflation actually fell even further. The euro-zone is still slipping towards the abyss even after Draghi's intervention last month. Draghi of course will use this "stable" situation as an excuse to once again do nothing.
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