Slowing EU inflation does nothing to change ECB policy

Fundamental Analysis


"...We have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook – which remains conditional on a very substantial degree of monetary accommodation. Hence a reassessment of the current monetary policy stance is not warranted at this stage."

- Mario Draghi, European Central Bank

Consumer inflation in the Euro zone rose in line with analysts' expectations last month, official figures revealed on Wednesday. Eurostat reported that its Final Consumer Price Index came in at 1.5%, compared to the preceding month's gain of 2.0%. However, the March figure came in line with forecasts. Back in February, the headline inflation rate hit the European Central Bank's target, raising expectations of a major change in the Bank's monetary policy. Nevertheless, following the February release, the ECB President Mario Draghi noted that inflation was in large part boosted by rising oil prices, while core inflation growth remained subdued. Wednesday's data confirmed Mario Draghi's outlook and lowered the possibility of the ECB tightening its monetary policy. The Bank's QE programme is set to run until December. Policymakers turned their attention to the upcoming elections in France and the region's largest economy, Germany, which continued boosting uncertainty in the region. Therefore, analysts do not expect the ECB to act until the presidential race ends. The first round of the French presidential election will be held on April 23. Latest opinion polls showed that Emmanuel Macron and Marine le Pen would likely make it to the final round.


"A build to gasoline inventories is tilted a little bearish, although a build of 2.5 million barrels on the Gulf Coast was in response to higher refining activity."

- Matt Smith, Clipper Data

US crude oil inventories dropped last week, whereas gasoline stocks rose unexpectedly, the Energy Information Administration reported on Wednesday. According to the EIA, US crude stocks fell 1.0M barrels in the week ended April 14, following the preceding week's decline of 2.2M barrels and meeting market analysts' expectations. Nevertheless, gasoline inventories climbed 1.5M barrels, falling behind a 1.9M-barrel fall forecast. Unusually high gasoline stockpiles raised concerns and sent the gasoline price 0.6% lower to $1.0701. The price of oil also dropped following the release. West Texas Intermediate futures fell to $52.24 per barrel, whereas Brent futures slipped to $54.75 per barrel. Refineries added 241,000 barrels per day in crude oil production, with the Gulf Coat contributing the most to the increase. Thus, the utilisation rate advanced 1.9% last week. Crude inventories at the Cushing, Oklahoma, dropped 778,000 barrels. Data also showed that distillate stockpiles that include heating oil and diesel decreased 2M barrels, compared to a 1Mbarrel decline forecast. The EIA highlighted that distillate inventories hit their lowest levels since November 2015. Yesterday, the OPEC reported that it would meet with non-OPEC countries at its next conference on May 25 to discuss further oil production cuts.


"The core reading is still low and the trimmed mean is creeping back into the target band but it's still on the lower end. Inflation is still pretty soft by historical standards. For us, the RBNZ will probably just remain on the sidelines from here."

- Tom Kennedy, JP Morgan

Inflation growth in New Zealand hit its five-year high in the threemonth period to March, surprising markets. Statistics New Zealand reported on Thursday that inflation rose at an annualised 2.2% rate in the Q1 of 2017, the highest level in five years. Thus, the inflation rate hit the mid-point of the Reserve Bank of New Zealand's inflationary target range of 1-3% for the first time in more than a year. On a quarterly basis, the Consumer Price Index climbed 1% in the March quarter, while market analysts anticipated a slighter increase of 0.8%. Therefore, annual inflation growth surpassed analysts' expectations for a 2.0% rise. Following the release, the New Zealand Dollar rose from 0.7000 to 0.7042 against its US counterpart. The Q1 inflation acceleration was in large part driven by higher oil and food prices and a tax hike on alcohol and tobacco. The housing market also provided a significant boost to inflation in the reported quarter. Nevertheless, New Zealand's Central bank is unlikely to change its monetary policy despite stronger-than-expect inflation data. The Bank's interest rates are also expected to remain unchanged at record lows of 1.75%. Excluding volatile items, such as petrol, alcohol and cigarettes, annual inflation climbed just 1.5% but remained within the Bank's target range.

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