- Craig Erlam, a market analyst at Alpari
On Wednesday statistical offices from Germany and Spain unveiled their inflation data that were not very promising. Stimulus that was announced in June by the ECB was expected to boost growth and inflation in the 18-nation bloc. While this decision helped to lower yields on government bonds, and the single currency depreciated (also with help of the U.S.), the economy is still not showing any signs of improvement.
All hopes were for Thursday's report from the Eurostat. While labour market improved slightly, with the overall jobless rate falling to 11.5% in June, hitting the lowest since September 2012 and from 11.6% a month earlier, the inflation rate slowed further. The cost of living in the Eurozone climbed just 0.4% in July, following a 0.5% increase in June. This is considerably below the middle-point of the ECB's 2% inflation, the indicator is still in the "danger zone" and posing a threat of deflation. The so-called core measure remained unchanged at 0.8% over the observed period. Thursday's data tested Mario Draghi's patience once again. Earlier, Draghi has admitted that it will take time for his stimulus to spill over to the real economy. Anaemic growth, stubbornly high unemployment and persistently low inflation are all constantly warning about the Japan-style stagflation and only reinforce the view the ECB will have to stick to the U.S-style quantitative easing programme.
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