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☆ Euro zone inflation eases in February but core prices surge
▼ + stars: | 2023-03-02 | by ( ) www.reuters.com time to read: +3 min

Indeed, underlying inflation, which filters out volatile food and fuel prices, an indicator closely watched by the ECB, jumped to 5.6% from 5.3%, coming well above expectations for a steady reading. Price growth in services, the biggest component in core inflation, accelerated to 4.8% from 4.4%, a big worry since the sector is especially sensitive to wage growth and the rise suggests an acceleration in labour costs. "High wage increases could imply that especially service price inflation could remain elevated in 2023-2024," Nordea analysts said in a note. "Given that the weight of services in the headline inflation is 44% and in core inflation 62%, elevated service price inflation will keep also the aggregate level inflation high." Industrial goods inflation meanwhile picked up to 6.8% from 6.7% while unprocessed food price growth surged to 13.6% from 11.3%.

FRANKFURT, March 1 (Reuters) - The European Central Bank's top three shareholders charted different paths for interest rates on Wednesday, in a preview of the difficult debate awaiting the ECB in the coming weeks. Bundesbank President Joachim Nagel appeared to back those expectations, anticipating "further significant interest rate steps" after March, when the ECB has already pencilled an increase worth half a percentage point. "The interest rate step announced for March will not be the last," Nagel, a policy hawk who favours higher rates, said in a speech. "Further significant interest rate steps might even be necessary afterwards, too." Based on national data out already, Barclays predicted that underlying inflation could accelerate to 5.4% from 5.3%.

☆ ECB may need big rates hikes beyond March, steeper QT from July, Nagel says
▼ + stars: | 2023-03-01 | by ( ) www.reuters.com time to read: +2 min

"The interest rate step announced for March will not be the last," Nagel said in a speech. "Further significant interest rate steps might even be necessary afterwards, too." Once rates peak, they must stay high until the ECB is confident that inflation will return to 2%, Nagel said. "This also has to be reflected in underlying inflation. Until that is the case, interest rate cuts are a non-starter," Nagel said.

☆ Analysis: Traders relaxed as ECB starts running down massive bond holdings
▼ + stars: | 2023-03-01 | by ( Yoruk Bahceli | ) www.reuters.com time to read: +6 min

So far traders are optimistic, comforted by an initially small pace of bond sales and a predictable structure. U.S. and UK central banks have started QT, although the Bank of England was forced to delay its plans following turmoil in British bond markets last year. said DZ Bank's head of government bond trading Dalibor Jarnevic. If APP reinvestments stop before the end of 2024, ECB market presence would rely on reinvestments under the more flexible Pandemic Emergency Purchase Programme (PEPP). Whatever the size or pace, traders are seeking opportunities as the ECB makes the shift to QT.

Despite relief measures, energy prices in February were 19.1% higher on the year, while food prices were 21.8% higher, it said. The first one was driven by energy prices and the second one by material inputs, which are not ebbing. While energy prices were keeping headline inflation high, wage growth will show its impact in core inflation, which will remain stubbornly high, Brzeski said. "Hence, a stepdown to a 25bp pace of hikes could be delayed, which would also push the terminal rate higher." "The interest rate step announced for March will not be the last," Nagel said in a speech.

"For energy, food and goods, there’s a lot of forward-looking indicators saying that inflation pressures in all of those categories should come down quite a bit." Other policymakers, including board member Isabel Schnabel and Dutch central bank chief Klaas Knot, have expressed concern core inflation could get stuck and perpetuate inflation. For the ECB to end rate hikes, Lane outlined three criteria. The bank needs lower inflation projections through its three-year forecasting horizon and to make progress in lowering actual underlying inflation. "Actual goods retail prices are still very strong, but the intermediate stage has been a good predictor of price pressures," Lane said.

☆ Unexpected inflation jump adds to ECB headache
▼ + stars: | 2023-02-28 | by ( ) www.reuters.com time to read: +2 min

Germany's 10-year bond yield, the benchmark for the euro zone, jumped to its highest level since 2011 at 2.66% as traders ramped up bets that ECB rates will peak around 4% at year-end. Expectations for the peak in ECB rates have risen by over 40 basis points this month on fears that inflation will be more persistent than expected, particularly for core goods that exclude volatile fuel and food prices. Some investors even think there is a risk of the ECB raising rates by more than 50 basis points in March, despite its explicit guidance for the move. "The February data shows that French inflation has not reached its peak yet," ING economist Charlotte de Montpellier said. In Spain, core inflation also accelerated, adding to the ECB's worries that price growth is becoming persistent.

☆ Euro zone lending growth slows further amid downturn
▼ + stars: | 2023-02-27 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, Feb 27 (Reuters) - Bank lending to euro zone companies eased for the third straight month in January, as rising interest, an economic downturn and increased caution from lenders appear to be taking their toll, European Central Bank data showed on Monday. Lending to businesses in the 20 nation currency bloc expanded by 6.1% in January after a 6.3% rise a month earlier while household credit growth slowed to 3.6% from 3.8%. The monthly flow of loans to companies was a mere 2 billion euros but that is still an improvement on the negative 25 billion euro reading a month earlier. Growth in the M3 measure of money circulating in the euro zone meanwhile fell to 3.5% from 4.1%, coming well below expectations for 3.9% in a Reuters survey. Reporting by Balazs Koranyi Editing by Francesco CanepaOur Standards: The Thomson Reuters Trust Principles.

☆ ECB could still need big rate hike beyond March, Nagel says
▼ + stars: | 2023-02-24 | by ( ) www.reuters.com time to read: +2 min

Feb 24 (Reuters) - The European Central Bank may still need to raise interest rates significantly beyond March as inflation, particularly underlying price growth, remains too high, Bundesbank President Joachim Nagel said on Friday. Although headline inflation is well below its peak, underlying price growth, a key indicator of the durability of inflation, rose to a record high 5.3% last month, raising the risk that price growth will get stuck above the ECB's 2% target. "That's why I'm not ruling out that further interest rate hikes, significant interest rate hikes, beyond March, may be necessary." Disputing that point, Nagel said he did not think rate were restrictive yet, despite the steepest monetary tightening cycle in the ECB's history. Reporting by Francesco Canepa; writing by Balazs Koranyi; Editing by Alex Richardson, Robert BirselOur Standards: The Thomson Reuters Trust Principles.

☆ Euro zone inflation marginally higher in Jan; core also lifted
▼ + stars: | 2023-02-23 | by ( ) www.reuters.com time to read: +3 min

FRANKFURT, Feb 23 (Reuters) - Euro zone inflation was only a touch higher in January than earlier estimated, Eurostat said on Thursday, confirming that price growth is now well past its peak, even if underlying price pressures still show no signs of abating. Indeed, worries about underlying inflation have dominated public commentary from policymakers in recent weeks and some have argued that rate hikes should not stop until there is a clear turnaround in core price developments. Euro zone inflation slowing from Oct peakServices inflation, the biggest chunk of core inflation, was revised up to 4.4% from 4.2%, likely worrying some because services primarily reflect wage growth and employee earnings are now rising at their fastest pace in years, even if real or inflation-adjusted growth is still negative. Energy price inflation was revised to 18.9% in January from an initial 17.2%, but that is still down from 25.5% in December. Latvia had the highest inflation in the euro zone with a rate above 21%, while Luxembourg and Spain had the slowest at just under 6%.

"Markets are priced for perfection," Schnabel, the head of the ECB's market operations, told Bloomberg. Money markets now show investors betting on a peak ECB rate at around 3.75% by late summer, up from levels around 3.4% earlier this month, as a string of hawkish ECB comments in recent days unwound earlier bets. He and fellow board member Fabio Panetta said the impact of many of the ECB's rate hikes so far had yet to be felt by the economy, with the latter calling for "small steps" going forward. The ECB raised rates by 50 basis points this month and pre-announced another increase of the same size for March 16. But it kept an open mind about future moves, with most policymakers expecting another rate hike in May.

☆ Factbox: Key ECB policymaker comments since Feb rate hike
▼ + stars: | 2023-02-17 | by ( ) www.reuters.com time to read: +4 min

By smoothing our policy rate hikes – that is, moving in small steps – we can ensure that we calibrate (policy) more precisely. Boris Vujcic, Croatian central bank governor, Feb. 10"I would agree that we are likely to see more rate action beyond March." Joachim Nagel, German central bank chief, Feb. 7"From where I stand today we need further, significant rate hikes." Pierre Wunsch, Belgian central bank chief, Feb. 3"I don’t think we're going to move from 50 basis points (in March) to zero. Gediminas Simkus, Lithuanian central bank chief, Feb. 3"The March rate hike is not the last one.

☆ Analysis: ECB faces new communication challenge as inflation falls
▼ + stars: | 2023-02-16 | by ( Balazs Koranyi | ) www.reuters.com time to read: +5 min

But core inflation is proving stubborn and could still rise from last month's 5.2%. "We have to continue to emphasize that we have this medium term perspective," Klaas Knot, the Dutch central bank chief said. It has oscillated between focusing on current inflation, future inflation and core inflation. Wages are the biggest factor in that sector's prices and services inflation is still just above 4%. So wage growth of the magnitude of 5% or more could push services inflation even higher.

☆ ECB's Panetta calls for small rate hikes as inflation falls
▼ + stars: | 2023-02-16 | by ( ) www.reuters.com time to read: +2 min

LONDON, Feb 16 (Reuters) - The European Central bank should start raising its interest rates in smaller increments and avoid committing to future moves as inflation in the euro zone falls, ECB board member Fabio Panetta said on Thursday. "With rates now moving into restrictive territory, it is the extent and duration of monetary policy restriction that matters," Panetta told an event in London. Financial markets expect the ECB to increase the rate it pays on bank deposits to at least 3.5% by the summer, from 2.5% currently. Panetta also predicted that core inflation, which has become the key variable in the ECB's debate, "would eventually follow" headline inflation in falling and there was no evidence of price expectations getting out of control despite rising wages. He also called for a "a measured approach" to the ECB's unwinding of its bond holdings, which Knot and Nagel, among others, want to accelerate.

☆ ECB's Makhlouf says long way to 2% target; credibility 'at risk'
▼ + stars: | 2023-02-16 | by ( ) www.reuters.com time to read: +1 min

DUBLIN, Feb 16 (Reuters) - The European Central Bank still has a way to go to sustainably return inflation to its 2% target and its credibility - and ultimately its independence - is at stake, ECB Governing Council member Gabriel Makhlouf said on Thursday. "There is a risk that trust and credibility in central banks will take another buffeting from the recent high inflation," Makhlouf, governor of the Irish central bank, said in a lecture at the London School of Economics. "And, while headline inflation has declined from its end-2022 highs, in part thanks to lower energy prices, I believe we still have a way to go to return inflation sustainably to our 2 per cent target." In his speech, Makhlouf warned that central bank independence "is not just given, it has to be earned and maintained. "Trust and credibility, painstakingly built over time, can be destroyed quickly," he said.

☆ A third of euro zone employees want more remote working -ECB study
▼ + stars: | 2023-02-15 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, Feb 15 (Reuters) - Nearly a third of euro zone workers want to work from home more frequently than their employer allows them to, and are willing to change jobs to be able to do so, a European Central Bank study showed on Wednesday. Businesses are still negotiating policies around working remotely, with the subject causing tension between unions and employers including at the ECB, which is offering fewer remote working days than its employees desire. "Workers are more willing to change jobs if they have remote work preferences that exceed those they perceive their employers to have," an ECB study showed. "30% of workers had work from home preferences that exceeded what they expected their employers to offer." Employees wanting greater remote work opportunities were more likely to seek fresh employment and actually change jobs, the study said.

☆ Euro zone inflation could fall faster than thought, ECB's De Cos says
▼ + stars: | 2023-02-15 | by ( ) www.reuters.com time to read: +1 min

MADRID, Feb 15 (Reuters) - Euro zone inflation could fall faster than earlier thought given a host of positive developments in recent months but past price hikes and a tight labour market could still exert upward pressure on underlying prices in the near term, European Central Bank policymaker Pablo Hernandez de Cos said on Wednesday. "Recent data on euro area inflation and some of its key determinants are somewhat encouraging, but the overall situation still requires caution", De Cos said in a speech posted on the webpage of the Bank of Spain. He also mentioned the possible effects of the Chinese reopening, the resilience of the euro area economy and the transmission of ECB monetary policy decisions. "All these will have to be assessed as part of the full projections exercise under way in the run-up to our March meeting," De Cos said. Reporting by Jesús Aguado; Editing by Balazs KoranyiOur Standards: The Thomson Reuters Trust Principles.

☆ Euro zone governments will be net losers from high inflation, ECB says
▼ + stars: | 2023-02-13 | by ( ) www.reuters.com time to read: +2 min

In a more normal bout of inflation and without automatic spending adjustments, the bloc's debt ratio would indeed fall, the ECB argued. But the energy shock, the subsequent slowdown in growth, and rigid spending rules mean that governments' fiscal position is negatively affected already after a year. While inflation normally boosts tax revenue, the energy shock's income boost is modest, weighs on corporate profitability, reduces overall growth and puts pressure on nominal public spending. "Moreover, the monetary policy reaction required to avoid this inflation shock leading to undue second-round effects is being translated into an increase in interest payments on government debt," the ECB added. About a third of government spending is also indexed, mostly to inflation, so high price growth automatically forces governments to spend more, the ECB said.

☆ ECB must keep raising rate despite public sacrifice, Vujcic says
▼ + stars: | 2023-02-10 | by ( Balazs Koranyi | ) www.reuters.com time to read: +4 min

Euro zone core inflation could drop below headline price gorwth in 2023Still, that is not a signal that the ECB's job is done, the Croatian argued. "There is a possibility that headline inflation will fall to 2% much sooner than expected due to various factors ... (that) bring the headline figure down sharply, below core inflation," Vujcic said. Dutch central bank chief Klaas Knot has also warned that headline inflation could fall below underlying prices. Economists call sacrifice ratio the loss suffered in order to achieve a reduction in the long-run inflation rate. "We would have to explain to public why we are keeping restrictive monetary policy stance if headline inflation already fell," Vujcic said.

☆ ECB rates must rise significantly; broad disinflation not happening - Schnabel
▼ + stars: | 2023-02-10 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Feb 10 (Reuters) - The European Central Bank must still raise interest rates significantly as broad disinflation has not yet started, even if overall price growth has been declining quickly, ECB board member Isabel Schnabel said in a Twitter Q&A on Friday. "Rates must reach a sufficiently restrictive level ... (and) we’ll keep rates high until we see robust evidence that underlying inflation returns to our target." "We need to stay the course and raise rates significantly further," Schnabel said. "We need to see robust evidence that underlying inflation is returning to our target." But underlying price growth appears to be stubbornly high leading to fears that price growth could get stuck at levels above the ECB's 2% target, partly due to quick nominal wage growth.

☆ Euro zone banks to repay another 36.6 bln euros in ECB loans
▼ + stars: | 2023-02-10 | by ( ) www.reuters.com time to read: 1 min

FRANKFURT, Feb 10 (Reuters) - Euro zone banks will repay another 36.6 billion euros in European Central Bank loans early, the ECB said on Friday, a small move that may still help the central bank's fight against inflation by mopping up cash from the financial system. The latest repayment of the ECB's Targeted Longer-Term Refinancing Operations will take the amount of outstanding TLTRO loans to roughly 1.22 trillion euros - still more than half of its level in the autumn. The ECB has given banks the option of repaying TLTRO loans ahead of schedule to unwind some of its monetary stimulus of the last decade, and to reduce the amount it pays in interest on deposits after sharply raising interest rates. Friday's repayment will be settled on Feb 22. Reporting By Francesco Canepa; editing by Balazs KoranyiOur Standards: The Thomson Reuters Trust Principles.

☆ ECB set to raise rates again in May, policymakers say
▼ + stars: | 2023-02-03 | by ( ) www.reuters.com time to read: +2 min

While neither would specify where rate hikes could end, Simkus said the ECB could be approaching a peak. "I think that we are already moving towards that terminal rate." Indeed, analysts polled by the ECB expect the euro zone central bank to eventually conquer inflation - but not for another two years. Markets currently price the terminal rate at 3.35%, suggesting that some investors see just a 25-bp move after the already signalled March move, while others see 50. Companies surveyed by the central bank were planning to raise prices at a slower pace and with less conviction.

☆ ECB governors see at least two more rate hikes, sources say
▼ + stars: | 2023-02-02 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, Feb 2 (Reuters) - European Central Bank policymakers left Thursday's meeting expecting at least two more rate hikes, although differences remained about their pace and final destination, two members of the ECB's rate-setting Governing Council told Reuters. That was seen a possible terminal rate by some policymakers while others envisaged rate increases continuing through the summer to even higher levels. The sources said Thursday's decision was easily reached, with only a small minority of policymakers feeling it was too early to commit to a March rate hike worth 50 basis points. At a news conference after Thursday's decision, ECB President Christine Lagarde said the central bank had "ground to cover" in raising rates and that disinflation hadn't started yet in the euro zone. Reporting by Francesco Canepa and Balazs Koranyi; Editing by Catherine EvansOur Standards: The Thomson Reuters Trust Principles.

In both the United States and Europe, the words of central bankers led investors to cut their estimates of the peak or "terminal" rate expected in the current tightening cycle. With financial conditions loosening despite rising policy rates, "central banks must...be resolute in their fight against inflation and ensure policy remains appropriately tight long enough to durably bring inflation back to target," Adrian and others wrote. The European Central Bank seems furthest from a likely stopping point. Combined, the statements mark the start of the endgame for central banks that were slow to recognize the onset of inflation last year before engaging in a record-setting round of rate increases. Central bankers long ago stopped using the word "transitory" in reference to inflation that proved faster and more persistent than any expected.

This would take the rate the ECB pays on bank deposits to the highest level since November 2008, after a steady climb from a record low of -0.5% in July. Reuters GraphicsThe ECB said in December that rates would be increased "at a steady pace" until it is happy inflation is heading back down to its 2% target. BNP Paribas also thought the ECB might take out the reference to a "steady pace" of rate hikes or offset it so that a 50-basis-point increase would be "not predetermined (but) still a possible outcome". And an ECB survey showed banks were tightening access to credit by the most since the 2011 debt crisis - usually the harbinger of lower growth and slowing inflation. To some observers, this meant the ECB would be wise not to commit to any future policy move.

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