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☆ Sticky underlying inflation set to keep ECB on its toes
▼ + stars: | 2023-02-01 | by ( ) www.reuters.com time to read: +4 min

The drop in headline inflation is unlikely to expunge concerns among conservative policymakers that rapid price growth is becoming entrenched, a worry reinforced by high underlying inflation on Wednesday. Inflation excluding volatile food and fuel prices picked up to 7% from 6.9% while an even narrower measure watched closely by the ECB held steady at 5.2%, exceeding forecasts for 5.1%. Underlying inflation was driven by a jump in processed food and industrial goods prices but services inflation, a key worry because it reflects wage growth, eased a touch. Euro zone unemployment held steady at 6.6% in December, its lowest rate on record, separate data showed on Wednesday. Markets now expect ECB rates to peak at 3.5%, the highest rate in over 20 years, suggesting another 100 basis points of hikes after Thursday's move.

☆ Euro zone inflation drops more than expected but core price growth holds steady
▼ + stars: | 2023-02-01 | by ( ) www.reuters.com time to read: +3 min

FRANKFURT, Feb 1 (Reuters) - Euro zone inflation eased for the third straight month in January but relief may be limited as underlying price growth held steady and concerns have already been raised about the reliability of the figures. The headline inflation drop is unlikely to expunge concerns among conservative policymakers that rapid price growth is getting entrenched, a worry reinforced by poor underlying inflation data on Wednesday. Excluding food and fuel prices, inflation picked up to 7% from 6.9% while an even narrower measure watched closely by the ECB, held steady at 5.2%, exceeding forecasts for 5.1%. Underlying inflation was driven by a jump in processed food and industrial goods prices but services inflation eased a touch. Indeed, unemployment held steady at 6.6% in December, its lowest rate on record, separate data showed on Wednesday.

☆ Euro zone economy unexpectedly expands in Q4, avoids recession
▼ + stars: | 2023-01-31 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Jan 31 (Reuters) - The euro zone eked out growth in the final three months of 2022, avoiding a recession even as sky-high energy costs, waning confidence and rising interest rates took a toll on the currency bloc's economy, data from Eurostat showed on Tuesday. Gross domestic product in the euro zone expanded by 0.1% in the fourth quarter, outperforming expectations in a Reuters poll for a 0.1% drop. Among the bloc's biggest countries, Germany and Italy recorded negative growth rates for the quarter but France and Spain expanded, Eurostat added, based on a flash estimate that is subject to revisions. Russia's nearly year-old war in Ukraine has proved costly for the euro zone, which now spans 350 million people in 20 countries, given some members' heavy reliance on cheap energy. But the economy has displayed some unexpected resilience, too, much like during the COVID-19 pandemic, when growth outperformed expectations as businesses adjusted faster to changed circumstances than policymakers had predicted.

☆ Euro zone economy unexpectedly grows in Q4 but weak 2023 looms
▼ + stars: | 2023-01-31 | by ( Balazs Koranyi | ) www.reuters.com time to read: +3 min

Among the biggest euro zone countries, Germany and Italy recorded negative growth rates for the quarter but France and Spain expanded, Eurostat added, based on a flash estimate that is subject to revisions. Russia's nearly year-old war in Ukraine has proved costly for the euro zone, which now spans 350 million people in 20 countries, given some members' heavy reliance on cheap energy. The overall picture nevertheless remains weak, with meagre growth forecast for 2023 due to a large drop in real incomes and surging interest rates. Ireland's 3.5% Q4 growth figure distorted the overall picture as it was driven largely by activity among big foreign companies based there for tax reasons, economists said, adding that without Ireland, euro zone growth would have been zero. "We continue to expect the euro area economy to contract slightly in the first half of the year, and the recovery expected in the second half is likely to be weak."

By announcing an inflation goal, central bankers feel they build credibility for themselves and focus the planning of households and firms in ways that help keep inflation controlled. Those decades, up to the end of the first year of the coronavirus pandemic in 2020, saw inflation largely contained. Achieving that target is just core to our overall monetary policy," Brainard said, a sentiment echoed in central bank headquarters from Frankfurt to London to Tokyo. "Let me be quite clear, there are no ifs or buts in our commitment to the 2% inflation target," Bank of England Governor Andrew Bailey said last year. Should inflation prove stickier than expected, achieving the central bank's 2% inflation goal could mean even more losses.

☆ Crucial euro zone inflation data will only include estimate for Germany
▼ + stars: | 2023-01-30 | by ( ) www.reuters.com time to read: +1 min

BERLIN/FRANKFURT, Jan 30 (Reuters) - Crucial euro zone inflation data due a day before the European Central Bank's Thursday meeting will only include an estimate for Germany after the bloc's biggest country delayed the release of its own figures, Eurostat said on Monday. German statistics agency Destatis unexpectedly pushed back the publication of German data to an unspecified date next week from Tuesday because of technical issues in processing data, it said in a statement. Instead of using reported German data, Eurostat, the European Union's statistics agency, will estimate German price growth, but will not publish this figure separately. Once Destatis figures are released, Eurostat will include them in final inflation data, set to be published on Feb 23. The ECB is all but certain to raise rates by a half a percentage point on Thursday but the fresh inflation data are still crucial for the bank's policy guidance for subsequent meetings.

LONDON/FRANKFURT, Jan 27 (Reuters) - Rising borrowing costs are giving a long-awaited lift to Europe's beleaguered banks, but they come with a sting in the tail. Last year central banks ended a decade of rock-bottom interest rates as the U.S. Federal Reserve and then the European Central Bank moved towards tightening. But while rising rates are good news for bank profits, they herald a slowdown in an economy hit by war and runaway prices that squeeze borrowers and could prick pricing bubbles, most notably in property. "On the one hand, interest rates are going up, which is good and helps banks," said Jerome Legras of Axiom Alternative Investments. Germany's financial regulator BaFin recently warned that a rapid rise in interest rates could weigh on some banks, and that loans may sour.

☆ Euro zone lending growth tumbles as higher rates bite
▼ + stars: | 2023-01-27 | by ( ) www.reuters.com time to read: +2 min

[1/2] A woman holds Euro banknotes in this illustration taken May 30, 2022. Lending to businesses in the currency bloc expanded by 6.3% in December after an 8.3% reading a month earlier, while household credit growth slowed to 3.8% from 4.1%. "Now we see sharp declines in (corporate) borrowing occurring, which is in fact more of a recessionary sign." The monthly flow of loans to companies was a negative 16 billion euros after a minus 4 billion euro reading a month earlier. Growth in the M3 measure of money circulating in the euro zone, often seen as an indicator of future economic expansion, meanwhile dropped to 4.1% from 4.8%, coming well below expectations for 4.6% in a Reuters survey.

"That would be a problem for any central bank." TUG OF WARLagarde's commitment also puzzled ECB-watchers because the central bank had previously said it wouldn't make such public predictions - known as forward guidance - anymore, but instead take each decision based on incoming data. This of course leads to a tug of war between the ECB and the markets on the narrative," he added. ING's Brzeski said the ECB lacked a clear thought-leader on its Governing Council who could steer markets like Lagarde's predecessor, Mario Draghi. "The cacophony of diverging voices and the lack of clarity on who is the leading voice keeps hurting the ECB," Brzeski said.

☆ Digital euro will be free but limited in scope, ECB says
▼ + stars: | 2023-01-23 | by ( ) www.reuters.com time to read: +2 min

"The digital euro would be a public good," Panetta told the European Parliament's Committee on Economic and Monetary Affairs. "It would therefore make sense for its basic services to be free of charge – for example when using the digital euro to pay another person, as is the case for cash." If issued, the ECB could develop its own standalone app for payments or may allow commercial banks to integrate the digital euro into their own platforms. "The ECB would not set any limitations on where, when or to whom people can pay with a digital euro," Panetta said. The ECB is still only investigating the creation of a digital euro and actual issuance is still years away.

[1/3] Signage is seen outside the European Central Bank (ECB) building, in Frankfurt, Germany, July 21, 2022. The Dutch and Slovak central bank governors gave explicit support for a bigger move in March while ECB President Christine Lagarde also appeared to back such an increase. But it is not a reason to slow the tempo of raising interest rates," Kazimir said in a statement on Monday. "I am convinced that we need to deliver two more hikes by 50 basis points." Economists polled by Reuters expect the ECB to deliver 50 basis point interest rate rises at each of its next two meetings.

☆ ECB struggled to compromise on December rate hike, accounts show
▼ + stars: | 2023-01-19 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Jan 19 (Reuters) - European Central Bank policymakers struggled to compromise on a 50-basis-point interest rate hike in December but concluded that strong hints about future increases were as good as a bigger rise immediately, the account of the meeting showed on Thursday. The ECB eased the pace of its interest rate hikes on Dec. 15 but stressed significant tightening remained ahead and laid out plans to drain cash from the financial system as part of a dogged fight against runaway inflation. It raised its rates by 50 basis points at that meeting and President Christine Lagarde hinted at as many as three more hikes of the same size. Still, a large number of policymakers were initially arguing for a 75-basis-point increase and some held out until the very end. Investors priced in more ECB rate hikes after the ECB decision but they have been revising their expectations since the turn of the year, as inflation data came in lower than forecast and the Federal Reserve raised the prospect of smaller rate increases.

☆ Investors underpricing ECB rate hikes, Knot says
▼ + stars: | 2023-01-19 | by ( ) www.reuters.com time to read: +2 min

"It will not stop after a single 50 basis point hike, that’s for sure," Knot told CNBC, adding that investors should take more seriously its policy guidance. "Most of the ground that we have to cover, we will cover at a constant pace of multiple 50 basis points hikes." "The sort of market developments that I've seen over the last two weeks or so, are not entirely welcome," Knot said after investors priced out some rate hikes. While a 50 basis point hike for February is fully priced in, markets are oscillating between 25 and 50 for March. Part of the change is related to more benign rate hike expectations from the U.S. Federal Reserve and an anticipation that the ECB would follow its U.S. counterpart if its slowed or stopped with rate hikes.

☆ ECB will stay the course of rate hikes, Lagarde says
▼ + stars: | 2023-01-19 | by ( ) www.reuters.com time to read: 1 min

Jan 19 (Reuters) - The European Central Bank will continue raising interest rates and leave them in restrictive territory for as long as it takes to bring down inflation to its 2% target, ECB President Christine Lagarde said on Thursday. "We shall stay the course until such a time when we have moved into restrictive territory for long enough so that we can return inflation to 2% in a timely manner," she said in a panel discussion during the World Economic Forum. Reporting by Balazs Koranyi and Francesco CanepaOur Standards: The Thomson Reuters Trust Principles.

☆ Davos 2023-ECB rates could peak by summer, Villeroy says
▼ + stars: | 2023-01-18 | by ( ) www.reuters.com time to read: 1 min

FRANKFURT, Jan 18 (Reuters) - European Central Bank interest rates could peak by the summer, French Central Bank Governor Francois Villeroy de Galhau told a panel discussion at the World Economic Forum in Davos. The ECB's 2% deposit rate is almost certain to rise to 2.5% next month and markets see it peaking at around 3.2% by July, a downgrade compared to the 3.5% priced by investors at the start of this month. Reporting by Balazs Koranyi; Editing by Jon BoyleOur Standards: The Thomson Reuters Trust Principles.

☆ Davos 2023: ECB's Villeroy says inflation battle not yet won, rate guidance stands
▼ + stars: | 2023-01-18 | by ( ) www.reuters.com time to read: +1 min

DAVOS, Switzerland, Jan 18 (Reuters) - The European Central Bank has yet to win its fight against sky high inflation so its guidance for big rate hikes in the months ahead remains valid, French central bank chief Francois Villeroy de Galhau said on Wednesday. "We must stay the course in our battle against inflation; it's not yet won," Villeroy told a World Economic Forum (WEF) annual meeting panel in Davos. Villeroy appeared to dismiss this, saying that ECB President Christine Lagarde's guidance for a 50 basis point move in February and possibly at subsequent meetings remain valid. Headline inflation could peak in the first half of 2023, followed by underlying price growth, and overall inflation could fall to the ECB's 2% target by late 2024 or early 2025, he said. Villeroy was also relatively optimistic on growth, arguing that a recession, part of the ECB's baseline forecast, could be avoided given recent indicators.

☆ China's reopening fuels global growth optimism, Davos panel says
▼ + stars: | 2023-01-18 | by ( ) www.reuters.com time to read: +3 min

REUTERS/Arnd WiegmannFRANKFURT, Jan 17 (Reuters) - China's reopening from pandemic restrictions could drive global growth beyond expectations and help avoid a broader recession even as some of the world's largest economies struggle to overcome a downturn, top finance officials at the World Economic Forum said. 'STRONG LABOUR MARKETS'Peterson said he still expected a "very mild" recession in the United States, Europe and the Britain, but full year net growth was still going to be positive. "Strong labour markets are not consistent with what we see with a recession and the labour markets are strong almost everywhere in the world," he added. Credit Suisse Chairman Axel Lehmann said he even hoped the United States could avoid a recession, but he too put his bets on China. "I also think that the economy has been surprising us quarter after quarter; the fourth quarter in Europe will be most likely still positive," Centeno said.

☆ ECB must keep raising rates to fight off inflation, Lane says
▼ + stars: | 2023-01-17 | by ( ) www.reuters.com time to read: +2 min

"We need to raise rates more," the FT quoted Lane said on Tuesday. Lane also said that euro zone governments, which are spending too much on subsidies now, will have to take on a bigger role in fighting off inflation. "The question is how do you get from mid-threes at the end of 2023 to the 2% target in a timely manner," Lane said. For most of the past decade the ECB fought excessively low inflation and some have argued that the underlying conditions have not changed so ultra low price growth could eventually return, forcing the ECB into retreat. But Lane appears to dismiss this argument, saying that the expectations are now adjusting to a higher, healthier level of price growth.

☆ Euro zone economy may avoid recession, Centeno says
▼ + stars: | 2023-01-17 | by ( ) www.reuters.com time to read: 1 min

FRANKFURT, Jan 17 (Reuters) - The euro zone economy may have outperformed expectations last quarter and ended 2022 with positive growth, European Central Bank policymaker Mario Centeno told the World Economic Forum in Davos. "I also think that the economy has been surprising us quarter after quarter; the fourth quarter in Europe will be most likely still positive," Centeno said. "Maybe we'll be surprised also in the first half of the year." The ECB predicted negative growth in both the fourth and first quarters before a rebound, so a positive outcome in the final months of 2022 would mean the bloc would avoid a recession, normally defined as two consecutive quarters of negative growth. Reporting by Balazs Koranyi; Editing by Andrew HeavensOur Standards: The Thomson Reuters Trust Principles.

"There are plenty of other people who can take measures to combat climate change and I worry that people, in their great enthusiasm for doing good, are actually putting at risk central bank independence," King said. They were in a minority in a conference packed with central bankers who had long accepted they had some duty towards the environment and, in many cases, were already taking some steps. "It would be misleading to use tighter financing conditions as a scapegoat for further delays in the green transition," Schnabel said. "By saying we have a role to play in helping to finance the green transition... we are increasing this misunderstanding of what our role is," said Wunsch, Belgium's central bank governor. Singapore's Ravi Menon, meanwhile, said central bankers should do much more to help the economy reduce its emissions than just focussing on the risks.

☆ ECB sees 'very strong' wage growth ahead in next few quarters
▼ + stars: | 2023-01-09 | by ( ) www.reuters.com time to read: +2 min

FRANKFURT, Jan 9 (Reuters) - Wage growth across the euro zone is expected to be "very strong" over the next few quarters but real wages are still likely to decline given rapid inflation, a European Central Bank Economic Bulletin article argued on Monday. "Wage growth over the next few quarters is expected to be very strong compared with historical patterns," the article written by staff economists concluded. But the expected economic slowdown and uncertainty about the outlook are likely to put downward pressure on wage growth beyond the near term, the economists argued. ECB President Christine Lagarde recently argued wages are probably rising at a faster pace than predicted and the ECB must stop this from pushing up longer term inflation expectations. "This could lead trade unions to demand higher wage increases in upcoming negotiation rounds, especially in sectors with lower wages."

But the headline number masked a more malignant trend, with all key components of core inflation accelerating. "Rising core inflation means that not much will sway the European Central Bank from the hawkish path it set out late last year," ING economist Bert Colijn said. The recession was expected to push up unemployment, naturally dampening price pressures. But employment, already at a record high, is actually going up, not down. "The delayed passthrough of high production costs and a still-strong labour market will sustain core inflation," Riccardo Marcelli Fabiani at Oxford Economics said.

☆ ECB must stop quick wage growth from fuelling inflation, Lagarde says
▼ + stars: | 2022-12-31 | by ( ) www.reuters.com time to read: +1 min

FRANKFURT, Dec 31 (Reuters) - Euro zone wages are growing quicker than earlier thought and the European Central Bank must prevent this from adding to already high inflation, ECB President Christine Lagarde told a Croatian newspaper. "We know wages are increasing, probably at a faster pace than expected," Croatian newspaper Jutarnji list quoted Lagarde as saying on Saturday. "We must not allow inflationary expectations to become de-anchored or wages to have an inflationary effect." Lagarde provided no new policy hint in the interview but said the bank must "take the necessary measures" to lower inflation to 2% from its current rate of near 10%. "We need to be careful that the domestic causes that we are seeing, which are mainly related to fiscal measures and wage dynamics, do not lead to inflation becoming entrenched," Lagarde said.

☆ Euro zone business lending growth slows sharply in November
▼ + stars: | 2022-12-29 | by ( ) www.reuters.com time to read: 1 min

FRANKFURT, Dec 29 (Reuters) - Bank lending to euro zone companies slowed in November, easing back from the sector's biggest borrowing binge in over a decade as rising interest rates and a looming recession appear to be taking a toll, European Central Bank data showed on Thursday. Lending to businesses in the 19-country euro area expanded by 8.4% in November after an 8.9% reading a month earlier while household credit growth slowed to 4.1% from 4.2%. The monthly flow of loans to companies was also sharply lower at minus 1 billion euros after a 24 billion euro reading a month earlier. Growth in the M3 measure of money circulating in the euro zone meanwhile slowed to 4.8% from 5.1%, coming below expectations for 5.0% in a Reuters survey. Reporting by Balazs Koranyi;Editing by Elaine HardcastleOur Standards: The Thomson Reuters Trust Principles.

While the error margins are unlikely to distort euro inflation in the long-term, economists say they could warp inflation expectations if not addressed, at a time when the European Central Bank is raising rates aggressively to tame double-digit inflation. As falling energy prices will take time to be reflected in household contracts, the current methodology will underestimate inflation when energy prices fall, CBS said. More volatility could follow when Germany introduces a cap on energy prices in March, that will also cut costs for January and February retroactively, he said. Eurostat has said that only measures that have a direct impact on energy prices, known to consumers before they purchase the energy, should reflect in inflation calculations. FEEDTHROUGH RISKSWith inflation at 10%, the calculation issues are unlikely to significantly impact the aggregate euro zone inflation print.

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