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Euro Area Inflation Remains Unchanged

Headline Inflation Still Distant From Levels Targeted by the European Central Bank

eu-inflation

As the European Central Bank prepares to announce its first monetary policy decision for 2016, inflation values remain far from the Central Bank’s mandate of price stability. The European Statistics Office reported end of year annual results for 2015 showing consumer prices staying unchanged relative to values recorded in prior periods and matching expectations.

EU Inflation Meets Expectations

The annualized consumer price index for the Euro Area ended 2015 with a rise of 0.20% meeting expectations and unchanged compared to the prior month’s figures according to the report distributed by Eurostat. On a monthly basis, inflation flat-lined, stagnating at of 0.00% after falling to -0.10% in November. Core inflation, which excludes energy, food, alcohol and tobacco, remained steady, exhibiting 0.90% annualized expansion, well below the ECB’s target for inflation to rebound towards 2.00% over the medium-term. Despite optimistic expectations from ECB President Mario Draghi that inflation would begin to pick up after adjusting the deposit rate further to the downside and extension of the quantitative easing program, the measure has barely budged.  All eyes now turn to Thursday’s ECB decision and press conference on monetary policy. While the Euro retreated after the announcement, the EURUSD pair surged higher late in the trading session, climbing back above 1.0900.

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UK Inflation Climbs

Consumer price inflation for the United Kingdom surprised estimates, recording a modest uptick at the end of 2015 to 0.20%, the highest level reported since January 2015. On a monthly basis, inflation rose by 0.10%, matching expectations and leaving behind November’s stagnant value. The upward momentum in the annualized figure came thanks to gains in house pricing and utilities whereas on a monthly basis, airfares surged by 46.00%. Annual Core inflation also ticked higher, climbing to 1.40% from previous month’s 1.20%. However, inflation remains a key issue for policymakers with Bank of England Governor Mark Carney dashing any hopes of a near-term hawkish shift in the Central Bank’s outlook for interest rates.  Current expectations show inflation reaching 1.00% in 2016 and gradually ascending from there.  Upon the release of the report, the Sterling Pound briefly rose versus the US dollar before resuming the prevailing downtrend.

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Swiss Producer Prices Decline Further

Switzerland's producer price index has continued to contract as reported by the Swiss Federal Statistical Office. Producer prices fell by -5.50% for the month of December, matching November’s values and missing estimates of a slight improvement to -5.40% on an annualized basis. On a monthly basis prices sunk by -0.40%, slumping well below November’s value and estimates at 0.40% and 0.20% respectively. The biggest component of the losses remains oil, chemicals, pharmaceutics and machinery, recording the biggest declines over the reporting period of -9.10%. The statistics office noted that annual producer and import prices have been falling consistently since October 2013 whereas on a monthly basis it was the first drop reported in three months. The economy remains firmly in deflationary territory as the Central Bank intervenes to keep the currency competitive. 

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Turkish Central Bank Policy Unadjusted

The Turkish Central Bank has opted to leave monetary policy unchanged, marking the 11th consecutive month with no stimulus, meeting consensus forecasts from analysts. The one week repo rate was kept on hold at 7.50% with the key overnight borrowing and lending rates kept steady at 7.25% and 10.75% respectively. Policymakers elaborated on the decision, remaking that rates were left unadjusted owing to concerns arising from the persistent weakness in the global economy, most notably recent economic data from China. After refusing calls from many Government officials to raise rates, Turkish Central Bank Governor Erdem Basci failed to heed the pleas. Inflation closed the year of 2015 at the highest rate since November of 2014, with the 8.81% consumer price inflation reported printing well above the Central Bank’s target of 5.00% as the Turkish Lira continues to weaken.

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