Deflationary Pressures Mount in the Eurozone – Paxforex

Today forex traders received two consumer price index reports out of the Eurozone’s biggest and second biggest economies, Germany and France, which pointed towards a continued drop in consumer inflation. Deflationary pressures have been increasing, but the European Central Bank has yet to take further steps in its monetary policy.

The German CPI contracted by 0.2% in April which matched what economists expected. This is a sharp drop in comparisons to March where inflation was reported at a mild 0.3%. Annualized CPI in April came in at 1.3% which remains far below the 2.0% level the ECB favors, but above the 1.0% reported in March. The EU Harmonized CPI in Germany contracted by an even wider margin of 0.3% for an annualized CPI expansion of 1.1%.

The French CPI avoided contraction and was reported flat at 0.0% in April which came in below expectations for an increase of 0.1%. The annualized French CPI came in at 0.7%, missing estimates for a gain of 0.9% and just slightly above the 0.6% reported in March. The EU Harmonized CPI was also reported at 0.0% for April and rose 0.8% annualized. Economists expected an increase of 0.1% as well as 0.9%, both were missed.

The inflation data points towards more deflationary pressures in the Eurozone, but it may not be enough to result in a decisive action during the next meeting of the European Central Bank scheduled for June. Mario Draghi, the President of the European Central Bank, last week on Thursday announced that voting members of the ECB feel comfortable to act during the next meeting which caused a severe sell-off in the Euro.

The ECB has previously announced comfort to act, but failed to do so as economic data and key indicators were mixed and did not provide enough strong evidence which would warrant a further reduction in the interest rate which already stands at a record low of 0.25%. After today’s CPI reports the Euro managed to stabilize and drift higher.

Written by Paxforex