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ECB: Preview of meeting on June 5
Thu, Jun 5 2008, 07:47 GMT
by Danske Research Team
The story is very much the same this month and we dont expect a big change in tone from the ECB. While oil prices have risen further which could worry the ECB, most forward looking indicators for economic growth have worsened. The ECB remains caught in a balancing act between dwindling growth prospects with downside risks and high inflation with upside risks and fear of second round effects. The ECB is set to remain roughly neutral with a wait and see stance on Thursday. The ECB staff projection on growth and inflation will highlight the ECB dilemma and thus attract some attention.
Overview
The inflation pain keeps getting worse in Euroland as oil prices continue to rise. Inflation remains well above the target at 3.6%. If oil prices remain at current levels, the inflation rate will most likely edge even higher during the summer. While oil prices have fallen this week (down 5% from all time high) we expect the ECB to express concern over this development, and once again highlight that the time of elevated inflation could be even more protracted. What is important for the ECB, however, is that currently high inflation rates does not feed through to wages and long term inflation expectations. The ECB is likely to continue to warn strongly that it will not tolerate second round effects. This is not a big change from the last meetings, though, so the market will probably not react substantially to this.
Published on Thu, Jun 5 2008, 07:50 GMT
Danske Bank
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