Ryan and Mike were all over the European inflation data on Monday
But, what does it mean for the ECB come Thursday? (ECB announcement at 1145GMT followed by Dr. Dre Draghi press conference at 1230GMT).
In brief … While the March euro-area inflation was beneath economic forecasts, at 0.5% y/y versus market expectations of 0.6%, its probably not enough to trigger ECB action yet as:
- Most of the drag is coming from energy (i.e. non-core and transitory)
- The ECB expects a rebound in April inflation as ‘energy drag’ disappears and there is a boost from the timing of Easter the year (Easter is in late April this year, in contrast to March last year, which should help consumer activity).
We can probably reasonably expect, though:
- The ECB may try to talk the euro down, highlighting the possibility of unconventional policies (they have been already doing this)
- And, if April inflation should disappoint, the ECB will step into unconventional territory
Data since the last ECB meeting have evolved broadly in line with the ECB March projections, which should not warrant any policy actions yet.
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Thoughts welcome, as always