David Fuller's view -
Euro-area inflation stayed below 1 percent for a second month, less than half the European Central Bank's ceiling, underscoring the weakness in parts of the euro region's economy.
The annual rate rose to 0.9 percent from 0.7 percent in October, the European Union's statistics office in Luxembourg said in a preliminary estimate today. The median forecast in a Bloomberg News survey of 44 economists was for 0.8 percent. Separately, unemployment unexpectedly dropped to 12.1 percent.
The increasing inflation rate "is largely coming through because of base effects in Energy," said Guillaume Menuet, an economist at Citigroup Inc. in London. "Once these start to fall out of the calculation, it's quite likely by the spring of next year we'll have again more evidence of weakening price pressures."
Today's data mark the 10th straight month that the rate has been less than the ECB's 2 percent goal. The central bank unexpectedly cut its key refinancing rate by a quarter point to 0.25 percent on Nov. 7 to prevent slowing inflation from taking hold in a still-fragile euro-area economy. ECB President Mario Draghi said at the time that the region needs record-low borrowing costs to combat a "prolonged" period of weak consumer-price growth and "very high" unemployment.
Euro-area unemployment unexpectedly fell to 12.1 percent in October from 12.2 percent a month earlier. Economists had predicted the rate would stay unchanged, according to the median of 34 estimates.
After this month's surprise rate cut, ECB officials have said they still have options for easing monetary policy. Bloomberg News reported last week that policy makers are considering a smaller-than-normal cut in the deposit rate, currently at zero, to minus 0.1 percent, if stimulus is required.
It is no surprise that the Euro region's economic recovery remains weak. However, this does not detract from the ECB's considerable achievements since 'super' Mario Draghi was appointed president on 1st November 2011.
Unfortunately, there is little that he can do about Europe's high costs for Energy. Fracking would certainly reduce this problem but it is not happening, at least not yet. I expect money supply to remain very stimulative and Draghi may wish to engineer the Euro somewhat lower.
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