Thursday Jul 31, 2014 Search
Weather | Athens
32o C
25o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Europe’s twin woes fester in Draghi’s job-to inflation fight

Craig Stirling & Kristian Siedenburg

Europe’s twin woes of too little inflation and too many unemployed will dominate data due this week just as officials prepare forecasts backing the rationale for Mario Draghi’s surprise interest-rate cut.

Inflation stayed close to the lowest level in almost four years in November with a reading of 0.8 percent, according to the median prediction of 44 economists polled by Bloomberg News. Data published at the same time on Nov. 29 might also reveal the euro-area jobless rate remained at a record 12.2 percent.

Those reports precede quarterly forecasts that the European Central Bank president will present next week, heralded as an opportunity to help explain the Nov. 7 rate cut to 0.25 percent. Draghi said at the time that the region needs record-low borrowing costs to combat a “prolonged” period of weak inflation and “very high” unemployment, while board member Benoit Coeure said today the bank would act again if inflation continued to fall.

“They’re right that Europe is in line for a period of too little inflation, but not deflation,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc in London, whose inflation estimate matches the survey median. “They’re going to try to keep the market on high alert that they’ll move if they need to.”

Most economists say that the so-called flash estimate for inflation will show an increase from October’s reading of 0.7 percent, which was the lowest since November 2009. Estimates range from 0.6 percent predicted by David Milleker at Union Investment GmbH in Frankfurt, to 1.1 percent by Matthias Thiel at M.M. Warburg & Co. in Hamburg.

“It is clear that the inflation figure of October was weaker than expected,” ECB Chief Economist Peter Praet told Bloomberg Television on Nov. 19 when asked to explain the rate cut. “That was one of the elements, but not the only element” informing officials’ thinking, he said.

Draghi said last week that the ECB “acted to restore an appropriate safety margin” in line with its price-stability mandate of keeping inflation below, but close to, 2 percent.

“We acted because there was a risk that this security margin above the 0 percent level was eroded because of low activity and low inflation pressures,” Coeure said at a forum in Tokyo. “If we would see this security buffer further eroded, then we would act again, and we have enough instruments in our tool box to this purpose.”

Coeure said the ECB did not lower the benchmark rate this month because it saw the risk of deflation materializing in the Euro area.

Draghi’s predecessor in the job, Jean-Claude Trichet, said the ECB’s decision to cut rates was “a right one.”

“It is perfectly legitimate that central banks are guarding themselves for deflation as well as from inflation,” Trichet told reporters in London on Nov. 21. “I don’t trust there is a real risk, but you have to guard in any case.”

The inflation rate masks considerable divergence across the euro region. In Germany, Europe’s biggest economy, annual consumer prices increased 1.2 percent in October, in Italy inflation was 0.8 percent and in France it was 0.7 percent. In contrast, Greek prices slumped 1.9 percent from a year earlier.

“The biggest core country is taking a different course than the periphery,” said Jens-Oliver Niklasch, a fixed-income strategist at Landesbank Baden-Wuerttemberg in Stuttgart. Even so, he sees inflation back above 1 percent within the next year.

ECB staff predictions in September showed inflation at 1.3 percent in 2014. Next month’s forecast will incorporate the results of their twice-yearly consultation with euro-area central banks. Draghi pledged this month that the outlook will provide a “fuller picture” on just how long officials see insufficient inflation persisting.

The ECB president also said at this month’s decision that unemployment currently “looks like it is stabilizing” though “stabilizing at the top.” He reiterated on Nov. 21 in a speech surveying euro-area monetary and political efforts to foster growth that “for the sake of those who remain unemployed, we have to persevere.”

This week’s jobless data may underline the significance of that mission. Only one economist out of 34 surveyed predicts a drop in the unemployment rate, and two see it increasing to 12.3 percent. Giada Giani at Citigroup Inc. predicts the rate in Draghi’s home country of Italy will reach a record 12.6 percent, more than double the comparable measure for Germany.

With evidence on the euro-zone’s inflation and jobless predicaments published less than a week before the central bank officials’ forecast is presented, the ECB is wondering how it might respond with further action to aid an economy that expanded just 0.1 percent in the third quarter. Bloomberg News reported last week that policy makers are considering a smaller- than-normal cut in the deposit rate to minus 0.1 percent if more stimulus is needed to ward off deflation.

For now, economists say the ECB won’t do anything when policy makers meet on Dec. 5. While a majority in a Bloomberg survey say the ECB’s most probable next move will be new liquidity injections such as long-term loans, 77 percent of those see it happening in the first or second quarter of 2014. Just 9 percent see Draghi taking action in December.

“You can’t say that the ECB was wrong in cutting rates, even if it was a somewhat peculiar move on its part” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. “In December they won’t do anything, they will just present their updated predictions.”

[Bloomberg]

ekathimerini.com , Monday November 25, 2013 (09:28)  
Gov’t reins in spending of regions
Intralot to run one-horse race for betting permit
Work to start on Academy Gardens
Banks shift to corporate credit
Strawberry farm shooting verdict draws ire
There was an outcry on Wednesday after the owner of a strawberry farm in the Peloponnese, where 28 migrant workers were shot last year, was cleared of any wrongdoing along with one of his fo...
Greece evacuates Tripoli embassy
Greece dispatched a navy frigate to Tripoli on Wednesday after the Foreign Ministry decided to evacuate all personnel from its embassy in the Libyan capital as fighting between rival militia...
Inside News
SOCCER
Goalless draw at Liege puts Greens in driving seat
Panathinaikos got the upper hand in the battle for entry to the Champions League playoffs after snatching a goalless draw at Standard Liege on Wednesday. If anything, the Greek cup holders m...
SOCCER
Greek league recruits former referee Dallas
Former referee Hugh Dallas has been appointed as the head referee of the Greek Super League, the Hellenic Football Federation (EPO) said in a statement on Wednesday. The 56-year-old Scot ear...
Inside Sports
EDITORIAL
Populism eating up education
The fact that the issue of education is not topping the list of priorities for the current coalition government, but instead, has been left in the hands of incapable politicians is utterly i...
COMMENTARY
A valued but mistreated professional
I did not know much on a personal level about Dimitris Stefanou, Greece’s former administrative reform general secretary who died earlier this week at the age of 46. I did, however, have a s...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Goalless draw at Liege puts Greens in driving seat
2. Strawberry farm shooting verdict draws ire
3. Gov’t reins in spending of regions
4. Greece evacuates Tripoli embassy
5. Former municipal police officers put on the beat in city center
6. Intralot to run one-horse race for betting permit
more news
Today
This Week
1. Wine cup used by Pericles found in grave north of Athens
2. Six firms submit bids to lease Vouliagmeni beach
3. IMF's Lagarde not sure yet about debt relief for Greece
4. Coalition submits new proposals for Greek coastline
5. Police arrest one, seek another three over counterfeit goods
6. EU Commissioner Damanaki unlikely to return to Greek politics
Today
This Week
1. Quadriplegic woman on life support 'dies due to unpaid power bills'
2. Hedge fund Dromeus turns Greek tragedy to triumph with 160 pct gain
3. Defense Minister Avramopoulos to represent Greece at European Commission
4. Front-line threats
5. Greece names fifth privatization agency chief in four years
6. Greek coast guard picks up 77 migrants off Myconos
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.