Key highlights of the week ended January 8

Source: Dukascopy Bank SA
Euro zone
Euro zone consumer inflation remained stubbornly weak in December, underscoring challenges for the European Central Bank to boost inflation. Consumer prices in the 19-nation bloc climbed 0.2% on an annual and seasonally adjusted basis in the final month of the year. Policy makers and economists expected inflation to pick up, since oil prices were predicted to remain steady. However, with oil prices renewing the slide as 2015 drew to a close, those hopes have been fanned, adding to signs the ECB will embark on additional stimulus measures this year. The annual rate of inflation has been below the central bank's target since March 2013, and below 0.5% since July 2014. Declining oil prices have been the main contributor, falling 5.9% in the 12 month through December. At the same time, the core measure, which strips out alcohol, tobacco, food and energy, increased 0.9% in the reported month.  
Markit predicts a modest 0.4% growth of the Euro zone economy in the final quarter of 2015, suggesting 1.5% growth for the year as a whole. Given subdued inflation in the currency bloc, the European Central Bank will be pressured to act further to support the struggling Euro zone economy and boost consumer prices.

US
Meeting minutes of the FOMC's crucial December meeting, when the US central bank made a unanimous historic decision to hike interest rates for the first time in almost a decade, showed that central bankers believed economic activity expanded at a moderate pace. While net exports remained weak, consumer and business spending was solid, while the housing sector improved further. Policy makers expected that with gradual adjustments of monetary policy, economic activity would continue to expand at a moderate pace. However, the Fed expressed concerns over inflation in the near term, saying that recent declines in energy prices and the persistent strength of the US Dollar would exert additional downward pressure. Still, the Committee predicted inflation to reach the target of 2% in 2018, with a gradual gains in the coming years. Inflation has been below the Fed goal for more than three years. 

Canada
Bank of Canada Governor Stephen Poloz highlighted that divergence has become the dominant topic across the globe. While the Fed has just begun monetary policy normalization after seven years of keeping its fed funds rate near zero, other banks cut rates in the past year, including the recent ECB's move of lowering its deposit rate. Poloz believes that the theme of divergence is likely to remain for some time. The Governor ensured that the BoC would continue to conduct an independent monetary policy in response to Canada's own economic developments in order to achieve the 2% inflation target. The central bank has a number of tool at its disposal, both conventional and unconventional, to combat threats to the inflation target or to Canada's financial system. 

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