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Low Inflation Worries Central Banks on both Sides of the Atlantic

Posted by Joseph Trevisani on Mar 28, 2014 3:54:00 PM

There is little cheer for the developed world’s central banks in their latest consumer price figures. Inflation in the euro zone and the United States is far below each bank's the goal of 2.0 percent. In fact, the more recent the numbers the more somber the outlook.

The Federal Reserve’s preferred measure of consumer prices, the annual Personal Consumption Expenditures Core Price Index was unchanged at 1.10 percent in February. The index has been on a steady decline after reaching 2.03 percent almost two years ago in March 2012. Since April last year it has been bumping along below 1.20 percent, some months higher some lower.

The three month moving average was 1.13 percent in February, the lowest it has been since December 2010.

American Inflation has been falling despite a moderately improving U.S economy and the Fed's monthly purchases of $85 billion in assets from December 2012 until December 2013. The Fed has over the last three FOMC meeting reduced the purchases to $55 billion in steps of $10 billion.

The ECB has no reason to be pleased about the course of eurozone inflation either.  CPI has fallen from 2.7 percent annually in September 2012 to 0.8% at the last treading in February.

Mario Draghi the President of the ECB and  other official have repeatedly warned the bank  could take extraordinary measures including  negative interest rates to prevent deflation but thus far the bank has done nothing.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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