July 3, 2014
The struggle with low inflation in the Euro zone becomes more complicated. Recent data show reduction of the index of manufacturers prices by 0.1%, and the figure has been falling 5 months in a row. More over: comparing to May of last year the prices have dropped by 1%. So it is hard to expect any growth of prices on consumer goods, what is supported by a minuscule June inflation around 0.5%.
Against this background more and more often we hear claims to the ECB to start acting more in order to bring inflation to acceptable levels. In recent interview to business paper “Les Echos” French prime minister of France Manuel Valls called the ECB for the start purchasing assets (in other words for QE), and mentioned that the monetary policy is not just interest rates management.
Paris sentiments are quite clear because on the other side of La Manche the Bank of England has provided quite successful stimulating programs, what enabled the economy to show growth of 0.8% by results of the first quarter. Also French prime minister reminded for the second time about the necessity of a cheaper Euro rate as a measure of exporters support, especially in conditions of quite weak growth in the Euro zone.
Earlier Draghi also confirmed the fact that expensive Euro negatively affects inflation. Perhaps there was a hope that after June decisions the currency is going to start depreciating. But the markets accepted the ECB measures in a different way, crediting of the banks is not likely to get to financial markets and such an important package of actions diminishes the probability of QE launch at least in the coming months.
PPI fall could be ascribed to energy prices downgrading, but even without it the figure wouldn’t be able to start growing. It is worth mentioning, that a lot of factors affect the PPI: high unemployment, demand issues, slow growth of salaries, and even problems of receiving credit in a bank.
That is why current struggle against inflation is perhaps one of the biggest challenges in the ECB history.
The Euro is just above support at 1.3640. It is quite likely that the currency has fallen into the trading range between the aforementioned support line and resistance on the upside.
Around 101.45 the pair has rebounded. After an impressive ascent the currency continues growing. On current levels there is resistance, which is going to open the way to 102.13 if overcome.