- Marco Valli of UniCredit Economics
European producer prices, considered to be a proxy for the closely followed consumer price inflation, declined once again on a yearly basis in June, recording the 12th consecutive month without growth, according to Eurostat data. The Producer Price Index fell 0.8% on year in June, following May's decline of 1.0%. On a monthly basis, however, the reading beat estimates and climbed for the first time this year, inching higher seasonally adjusted 0.1% in June, compared to expectations for a flat reading.
The index underscores consistently weak pressures on consumer prices, with economists being concerned that the trend may become increasingly protracted, which may lead to stagflation, meaning ultra low inflation combined with zero economic growth or an open deflation. In June, the European Central Bank trimmed the interest rate on the main refinancing operations by 10 basis points to 0.15%, the interest rate on the marginal lending facility by 35 basis points to 0.40%, as well as cut the deposit rate into negative territory for the first time ever, to -0.10%. The next central bank meeting is scheduled for August 7, with analysts betting on uneventful outcome, as Mario Draghi and his colleagues will prefer waiting until recently launched measures spill over to the real economy.
© Dukascopy Bank SA