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EMU CommentLow inflation maintains "dovish" pressure on the ECB

  1. Core inflation decreased
  2. Unemployment still moving down
  3. ECB poised to react
Core inflation decreased
The flash annual consumer price inflation rose a notch to 1.5 percent in February from 1.4 percent in January, as widely expected. But the rise was primarily driven by higher food and energy price inflation, while service inflation in fact decreased to 1.3 percent from the previous 1.6 percent, implying that core inflation unexpectedly fell to 1.0 percent from the previous 1.1 percent. Hence the tightening of the labour market and signs of increasing wage growth still fail to spill over to core inflation, which has remained more or less flat in the past two years.
Unemployment still moving down
We also received unemployment figures for January, which were unexpectedly lower at 7.8 percent of the labour force after a downward revision of the December figures. The number of unemployed continued its long-lasting continuous monthly decline into January, and thus the recent softer tones from labour market indicators (PMI and ECFIN) still do not translate into rising unemployment.
ECB poised to react
Taking note of today’s numbers going into next week’s ECB policy meeting, the numbers do little to dampen expectations that the ECB will have to react as a consequence of the likely more downbeat outlook on growth and inflation that the economic staff is poised to take (see graph). We do not expect the ECB to announce new easing measures this time around, but likely resort to an announcement of a change in policy guidance, most likely an extension of the timing of the first hike in key ECB rates.

Source: Macrobond


Rasmus Gudum-Sessingø

Senior Economist


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