Published on Monday, January 29, 2024

Europe | ECB: more upbeat on inflation

All eyes at the beginning of 2024 are on the first monetary policy meetings, with the European Central Bank (ECB) holding its on Thursday and the U.S. Federal Reserve later this week. The meetings are unlikely to result in any action on interest rates, but there is a lot of interest in what they say.

Key points

  • Key points:
  • The ECB's statement and subsequent press conference suggest the central bank is more confident over fulfilling its mandate: ensure that inflation returns to its target in a timely manner.
  • Headline inflation in the eurozone ticked back up slightly in December to 2.9%, as the impact of some energy subsidies dropped out of the annual rate, although the rebound was weaker than expected by the central bank (and analysts). Core inflation continued on its downward path.
  • Elsewhere, the ECB noted that although the elevated rate of wage increases and falling labor productivity are keeping domestic price pressures high, these too have started to ease, while some labor market indicators (e.g. vacancies) are improving. Moreover, measures of short-term inflation expectations have come down.
  • As regards risks, while there are both upside and downside risks to inflation, it did not emphasize the upside risks. This is somewhat surprising considering data being release on the impact of the Red Sea shipping turmoil on freight costs and delays in supply deliveries.
  • That being said, there was no talk of rate cuts. This would be 'premature'. We will have to wait a few months. Once that cycle begins, discussions will revolve around the pace of the cuts and how far they can go.

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