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EMU Inflation Slips Again in November, is Mario Secretly Pleased?

Posted by Joseph Trevisani on Nov 28, 2014 12:50:00 PM

About the only European Monetary Union statistic that is cooperating with the ECB's policy desires is inflation. 

Euro-area annual CPI slipped to 0.3 percent in November from 0.4 percent a month earlier matching its five-year lows and giving President Mario Draghi fresh arguments in his campaign to convince the Bundesbank that full scale quantitative easing is needed to reflate the EMU economy.  The result equaled the median prediction from the Bloomberg survey of economists.

In a separate report from the ECB the M3 money supply increased 2.5 percent on the year in October, less than the 2.6 percent forecast and equaling the September pace. Euro-zone unemployment held steady at 11.5 percent according to Eurostat the statistics arm of the European Commission.  

The ECB has started programs to buy covered bonds and asset backed securities and offered long-term low interest rate loans to European commercial banks in an effort to lower market rates and spur bank business lending.

Mr.Draghi has made it plain that he also wants to begin a purchase program for EMU sovereign debt like the Federal Reserve QE plan that just ended. His desire has been thwarted by opposition from the German central bank and its President Jens Weidmann, with the presumed backing of Chancellor Angela Merkel, who feel that the program would be akin to financing the budget deficits of EMU member states, an action specifically forbidden by the central bank charter.

EMU inflation rates have been falling for almost three years, from 3 percent in late 2011 and has been below the ECB 2 percent target for almost two years since February last year.  

While part of the recent drop in CPI can be tied to plunge in oil prices, the long term inflation trend and the increasingly pessimistic outlook for European economics has led Mr. Draghi to note that he want to raise prices "as fast as possible".

European energy prices were 2.5 percent lower in November on the year driven recently by a 30 percent plummet in the price of a barrel of crude oil in the past three months. Yesterday OPEC decided not to reduce production putting further pressure on oil prices already hit hard by falling demand, a slowing world economy and North American shale oil production. 

The ECB targets headline CPI, including food and energy prices, unlike the Federal Reserve which targets core prices excluding those more volatile items.


Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: FX Street

emu cpi nov 28



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