Flash Update; European Inflation – 25 November 2014
As we head toward the middle of an important week for the European economy, consensus expectations appear to match official projections in that many anticipate a further fall in euro area inflation at Friday’s November reading.
In addition to this, Mario Draghi’s speech in Frankfurt last week now appears to be widely viewed as a precursor of further downward revisions to the long term inflation outlook, therefore increasing the likelihood of additional monetary stimulus over the months ahead.
Given the relatively muted enthusiasm for, and scepticism over, the ECB’s TLTRO and ABS programs; it is likely that the central bank will explore alternative options the next time it is forced to act.
Regardless of policy maker views over the effectiveness of sovereign bond purchases, over the longer term it will be difficult for the ECB to say that it has done all it can without first having attempted some form of quantitative easing program.
For this reason we anticipate that the next move coming from the ECB will be some form of QE, although the question of whether this will be a wholehearted effort remains open.
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