Once again as a result of the ongoing economic downswing, inflation is volatile in the euro zone. In January, CPI climbed at the quickest pace in nearly a year as a result of higher energy prices, while the yearly CPI today is projected to slip slightly. However, the main focus will be on the EU second-day meeting where they may add any new details with regard bailing out Greece.
On our calendars today, we see that CPI for February is expected to incline to 0.3% from the previous -0.8% while on the year to fall to 0.9% from 1.0%. Also CPI core on the year which excludes food and energy prices is to slip to 0.8% from 0.9%.
The slight shed in yearly prices is a result of the impaired demand as prices remain pressured while the high unemployment rates of 9.9% are also a major factor that weighs on general price levels.
The European Central Bank (ECB) earlier this month left interest rates steady at 1.00% while resuming to pull out stimulus measures gradually. Trichet's outlook for the euro zone is that growth will be witnessed but at a "moderate" pace during this year while still there are low inflationary pressures over the medium term which will support purchasing power.
The central bank projections for 2010 are expansion of 0.8%, while for next year, to grow at 1.5%. The European Commission, projects that inflation in euro zone during the first quarter will be at 0.8% before climbing to 1.3% in the second quarter.
Inflation is not an issue in the euro zone, as currently the focus is set towards the swelling budget deficits while there are major fears that the budget deficit will weigh on an economic recovery. From the worries around Greece's deficit which stood at 12.7% of GDP, pessimism is aroused in markets all around Europe since there are speculations this deficit might spillover to other nations in euro zone.
EU finance Ministers in their first-day meeting in Brussels yesterday set a strategy and arrangements for urgent situation loans for Greece at the suitable time, taking into consideration the euro which slipped nearly 10% versus the dollar since November and without violating any of the EU rules.
Most probably, the assistance to Greece will take the form of pooling funds to extend direct loans to the debt-laden country, as mentioned by a European official.
Juncker said the aid for Greece will not include loan guarantees, but it will mainly depend on help from European members. Nevertheless, the amount of aid and the share of each euro-area members have not been announced yet, with high possibility Germany will have the Lion's share in the rescue package. If a loan program is set by the EU, this would of the first since introducing the euro into markets in 1999.
EU 27 Finance Ministers lead by Luxembourg Prime Minister Jean-Claude Juncker will continue their talks today at 9 a.m.
Next on our calendars today, from the biggest nation in the euro zone, is going to release its ZEW survey regarding economic sentiment which is projected to retreat to 44.0 from 45.1, while also from the same survey but regarding the current situation will improve to -51.0 from -54.8.
Sentiment now around the world remains at shaky grounds despite the increasing signs that an economic recovery is taking place, yet there are worries in the market that the high unemployment rates, budget deficit in Greece, which might spread throughout the euro zone and tight lending conditions, might hold back an economic recovery.
