According to the latest figures reported by Eurostat, headline consumer prices edged higher to a 0.40% pace of increase on an annualized basis. Besides accelerating to the fastest pace of price gains since October of 2014, an improving trend could foreshadow potential tapering of asset purchases when the existing program is set to expire 2017. Although most economists and analysts are calling for an extension of the program, the problem lies in the supply of available assets for the current program. Due to the ECB’s rules that it cannot purchase assets yielding less than the deposit rate of -0.40%, many potential assets are excluded. Unless the terms of the program are adjusted, the ECB may run out of available assets to buy. If that happens, the Euro may rally significantly as the Central Bank adds less liquidity to financial markets.
Euro Zone Inflation Continues its Rebound
Daily Analysis - 18/10/2016