Eurozone inflation is likely to remain higher than US, leading to an appreciation of the Euro – Natixis

FXStreet Insights Team FXStreet

What will happen if US inflation remains permanently lower than Eurozone inflation? Economists at Natixis see three main consequences.

US inflation likely to remain permanently lower than Euzone inflation

It is possible that inflation in the US will remain lower than inflation in the Eurozone for a long time, due to: The Federal Reserve’s faster response to inflation than that of the ECB; The weaker bargaining power of wage earners in the US; Changes in labour productivity and corporate profit margins.

What would be the consequences of persistently lower inflation in the US than in the Eurozone? We can expect: A faster fall in interest rates in the US than in the Eurozone; An appreciation of the Euro against the Dollar and a cost competitiveness problem for the Eurozone; A penalisation of investment in the Eurozone.

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