Inflation in the Eurozone picked up slightly in November, in line with expectations. But behind the pure data lie nuances that may or may not accelerate the monetary policy roadmap of a European Central Bank (ECB) already focused on lowering interest rates. In November, the consumer price index (CPI) general of the euro zone increased by three tenths 2.3% over one yearas analysts expected. However, the most delicate and worrying Underlying CPI (excluding energy, food, alcohol and tobacco in this case), remains at 2.7% while 2.8% was expected. Likewise, the abrasive inflation of services – anchored almost 4% for months and months – fell by a tenth compared to the 3.9%. Two small joys which give arguments to the accommodating faction of the ECB (the doves) in its commitment to a “giant” rate cut of 50 basis points (double the usual amount) in December. However, the determination of the majority of the Governing Council to plead for more measured reductions of 25 basis points to “protect their backs” (the hawks’ bet) could make these small signs useless.
Contrary to what some analysts and pigeons claim, there is another completely opposite point of view: the ECB should only act on interest rates gradually and not lower them to a level that stimulates growth, he said. he assured. Bloomberg Isabelle Schnabelmember of the board of directors of the ECB, barely two days ago. “The risks to inflation are now more balanced. But I do not see a significant risk that inflation will not reach the target, especially if it justifies a response on our part,” said the German expert .
In the same spirit, his compatriot Joachim NagelPresident of the Bundesbank, warned against any rush into further rate cuts due to rigid service sector inflation, high wage increases and huge geopolitical uncertainties.
On the opposite bank, the chief economist of the euro bank, Philippe Lanenicknamed the “dove” of the central bank, prefers to ensure growth and employment by betting on a faster pace of reduction, even if she does not say it openly: “We do not commit in advance to a precise pace reduction, but we will have to gradually reduce our rates,” he assured the French financial newspaper this week. The Echoes in an interview. “Monetary policy must not remain restrictive for too long. Otherwise, the economy will not grow sufficiently and inflation will fall, I believe, below the target,” added the former governor of the Bank central Ireland.
The French governor, François Villeroy de GalhauHe even said on Thursday that the ECB may need to push borrowing costs into expansionary territory to promote growth, echoing recent comments from his Italian counterpart. Fabio Panetta. Greek Yannis Stournaras and the Portuguese Mario CentenoAlso on the moderate side, fears that the weakening of the European economy will lead to inflation remaining below the 2% target.
“Eurozone CPI data make a 50 basis point cut less likely in December”, are striking in Capital Economics. “The continued strength of services inflation in the euro zone in November reduces the probability that the ECB will reduce its interest rates by 50 basis points in December”, admits its analyst . Jack Allen Reynolds. However, the expert emphasizes, “we continue to believe that services inflation will soon start to fall sustainably, which would lead the ECB to cut interest rates more than most people expect.”
“Although we believe there are good reasons for the ECB to cut interest rates by 50 basis points in December, several influential members of the Governing Council appear to oppose this idea and the strength of inflation services could strengthen their arguments. But while we are correct in thinking that services inflation will decline in December and beyond and the economy will remain weak, we think sooner or later there will be bigger discounts“, adds the strategist. Indeed, according to calculations from his analysis house, the base effect in transport services would have added 0.2 percentage points to services inflation this month of November. Without this Indeed, services inflation would have fallen to 3.7%.
The data that comes in – let’s always remember the emphasis placed by Lagarde and his people on the fact that they are “data dependent“- they left nuances for all tastes and gave arguments for the hawks and the doves. Those known this Friday just before Eurostat published the Eurozone CPI seem to give ammunition to the doves and the analysts like those of Capital Economics.
He French CPI It accelerated in November, to 1.3% over one year, or a tenth more than the price increase observed in October, according to the first estimate published by the National Institute of Statistics and Economic Studies. (INSEE). This figure is, however, significantly lower than the 1.5% expected by analysts. The two-tenths increase in services and the slightest drop in energy are offset by fresh food products, which became more expensive in November by 1.8% year-on-year. In the case of the harmonized French CPI, used for the common Eurostat calculation, the indicator increased by a tenth to 1.7%, a tenth below what expected the economists consulted by Bloomberg.
This positive surprise in France follows data from CPI Spainand above all Germanywhich this Thursday inflamed the positions between supporters and detractors of the “giant” reduction of 50 basis points. Germany’s CPI came in at 2.2% year-on-year in November, Destatis reported, two-tenths higher than the previous month’s inflation figure, but a tenth lower than expected. A surprise which gave hope to the pigeons. However, the underlying CPI showed a rise of a tenth to 3%, which gave arguments to the hawks. Services maintained their progression at 4%, while goods stepped on the accelerator and became more expensive by 0.7%, proving the “hard” faction of the central bank right. In the German case, the harmonized CPI remained stuck at 2.4%, still far from the ECB’s 2% target. In Spain, the CPI jumped by six tenths to 2.4% over one year, according to the National Statistics Institute (INE), due to the rise in fuel prices and that of electricity. But more positively, the core CPI fell by a tenth, to 2.4%.
All these nuances in the different national inflation data do not seem to cover the great economic stagnation which threatens the region. The significant drop in the composite purchasing managers index (PMI index), which brings together the manufacturing and tertiary sectors of the euro zone, from 50 points in October to 48.1 points in November, has notably dampened hopes of an imminent economic recovery.
“The economy is expected to largely stagnate during the middle of the winter. France is increasingly becoming the second weak point in the monetary union, along with Germany,” warn economists at Commerzbank. At Political and budgetary uncertainty in France -the fragile government is struggling to execute its budgets while the risk premium has returned to the levels of the euro crisis-, an eternal German weakness continues to be added. It’s no longer just about the negative headlines from the industry and its major automakers. As we learned this Friday, the German retail sales The month of October recorded a weak rebound of 1% year-on-year, well below the 3.2% expected. Likewise, the September figure was revised from 1.4% to 0.9%.
