UPDATE: If you still had any doubts that the ECB was going to think twice about cutting rates, this newest slew of inflation statistics released by Eurostat this morning could be your confirmation.
Inflation rose from 2.5% in August to 3.0% in Septmeber.
With the ECB’s professed hawkishness on inflation, the likelihood of a rate cut — particularly along the likes of 50bps — now looks incredibly slim.
The following post was originally published yesterday.
PREVIOUSLY: A bunch of economic data out yesterday and today suggests that dreams of a European Central Bank rate cut are widely out of proportion.
Reasonably high inflation numbers — in addition to falling unemployment in Germany — signal that ECB members are going to have a tough time passing more accommodative economic policies, particularly while the bank remains under the tutelage of the French Jean-Claude Trichet.
In a press conference earlier this month, Trichet not only reaffirmed his commitment to price stability by calling it “one of [the EU’s] greatest assets,” but defended controversial rate hikes earlier this year.
September inflation numbers out of Germany and Spain — 2.6% and 3.1% — could dissuade the ECB from cutting rates. Further, the bank will likely think twice about cutting rates when German unemployment actually sank unexpectedly last month, from 7% to 6.9%. Not to mention that August inflation numbers for the rest of the biggest eurozone economies were all over 2%.
With rising inflation remaining the chief priority of the ECB, these numbers do not bode well for a new rate cut in October. However, the ascension of Italian Mario Draghi to the bank presidency could spell a change in ECB policy in November.
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