"The ECB is going to remain in a wait-and-see mode this year, but given the downside risks to growth and inflation, we maintain our call for more action early next year, focused on asset purchases"
- Michel Martinez, an economist at Societe Generale SA
The Euro zone inflation, the primary gauge of consumer spending, remained low in what the central bank calls the "danger zone", in line with expectations, as falling prices of food and phone calls offset more expensive tobacco and restaurants. EUR/USD appeared to have a muted reaction on the data release. Consumer prices in the Euro bloc inched higher 0.1% month-on-month in June, translated into a 0.5% annual gain, the data from Eurostat showed. The annual headline inflation rate is well below the ECB's inflation goal of close to but below 2%. The central bank believes that price growth slower than 1% is a "danger zone" due to the threat of deflation. Price growth has been below 1% since last in October. The ECB kept interest rates unchanged in July, a month after trimming them to historic lows and bringing the deposit rate into negative territory. Moreover, the bank reiterated its pledge to do whatever it takes by claiming that it was ready to print money in the future if needed to prevent deflation.
Consumer prices fell in Greece, Portugal and Slovakia in June and 5 countries had inflation at or above 1%, including Germany where prices rose 1.0% on the year. Core inflation that excludes energy, food, alcohol and tobacco, rose marginally to 0.8% in June from 0.7% in May. The final figure matched the flash estimate released on June 30.
© Dukascopy Bank SA