Greenwood Trading – Calls for the ECB to begin quantitative easing are likely to increase after inflation in the euro area slowed to 0.4%.
Greenwood Trading: Pressure on European Central Bank President, Mario Draghi, for the commencement of a no-nonsense quantitative easing program is likely to increase after official data showed that inflation in the 18-member bloc using the single currency slowed to 0.4%, the lowest rate since October 2009.
The data released by Eurostat the, the European Union’s statistics office, compares with a 0.5% reading in June and underscores general perceptions that the euro-area is flirting dangerously with deflation.
Greenwood Trading’s head of macro-economic research, Simeon Kwanda said, “Fears are mounting that the ECB doesn’t have the luxury of waiting to see if the measures they unveiled last month will have enough of an impact. Negative deposit rates for banks and a program to boost bank lending smacks of too little, too late.”
The euro area is forecast to grow by just 1 percent this year while unemployment remains stubbornly high at 11.5%. The inflation rate has held below 1% for 10 months, less the half the ECB’s target rate of 2% and, according to Greenwood Trading, the continuing tensions between Ukraine and Russia are adding to the risks.
“Though there’ve been a few isolated signs of recovery like a pickup in manufacturing and services activity this month, the areas the ECB considers instrumental in recovery like business and personal lending have yet to improve,” added Kwanda.
The firm believes that Mr. Draghi will elect to hold off initiating a quantitative easing program preferring, instead, to give recent measures a chance to work through the euro-area’s economy.
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