Euro zone inflation dives as ECB poised to act

MARTIN SANTA

BRUSSELS — Reuters

Published Tuesday, Jun. 03 2014, 5:40 AM EDT

Last updated Tuesday, Jun. 03 2014, 5:40 AM EDT

Euro zone price inflation fell unexpectedly in May, increasing the risks of deflation in the currency area and sealing the case for the European Central Bank to act this week. Annual consumer inflation in the 18 countries sharing the euro fell to 0.5 per cent in May from 0.7 per cent in April, the EU’s statistics office Eurostat said on Tuesday.

Economists surveyed by Reuters expected inflation to remain at April’s level.

A clutch of senior sources told Reuters earlier this month that the ECB was preparing a package of policy options for its meeting on Thursday, including cuts in all its interest rates and targeted measures aimed at boosting lending to small– and mid-sized firms (SMEs).

The weak rate of May price rises would seem to cement expectations that the ECB will now deliver a series of measures to make it even cheaper to borrow and help the economy.

May’s reading is back at levels last seen in March – the lowest level since November 2009 and reflecting low inflation in Germany.

Inflation in the 9.5 trillion euro economy is stuck in the ECB’s ‘danger zone’ of below 1 per cent, a sign of the fragile recovery. The ECB says it stands ready to use all tools available to fend off deflation risks and aid the economy.

Core inflation, excluding energy, food, alcohol and tobacco, fell to 0.7 per cent in May from 1.0 per cent in April. Energy prices were flat on the year, showing no decline for the first time in five months.

Global financial markets have been buoyed by the odds of cheaper money in the bloc and could react sharply if the ECB does not deliver on Thursday.

In a sign of the slow economic recovery, a separate Eurostat data release showed the bloc’s unemployment dipped marginally to 11.7 per cent in April from 11.8 per cent, but still near the record high of 12 per cent registered a year ago.

Some 18.75 million of people are without jobs in the euro zone – 76,000 less than in March, the Eurostat data showed.

Joblessness has been stuck at almost 19 million people for the last four months and shows the human impact of the worst financial crisis in a generation, but it also varies widely across the euro zone.

ECONOMIC OUTLOOK: Canada inflation exceeds forecast, retail sales rebound

Canada inflation exceeds forecast, retail sales rebound

Louise Egan OTTAWA — Reuters

Published Friday, Mar. 21 2014, 8:37 AM EDT

Last updated Friday, Mar. 21 2014, 9:48 AM EDT

Canada’s inflation rate slowed in February but stayed within the central bank’s comfort zone, news that may reassure policymakers somewhat but is unlikely to trigger a change in their neutral stance on interest rates.Consumer prices rose 1.1 per cent in the year to February, down from a 1-1/2-year high of 1.5 per cent in January but above the market forecast of a 0.9 per cent increase, Statistics Canada data showed on Friday. Lower gasoline prices partially offset higher shelter and food costs in February, it said.

Statscan also reported that retail sales bounced back in January after being hit by severe weather in December, growing at the fastest pace since May, at 1.3 per cent. The volume of sales was up by a healthy 1.4 per cent.Core inflation, a gauge of underlying price trends, was also a notch above expectations at 1.2 per cent but down from 1.4 per cent in January.

Chronically weak inflation is the Bank of Canada’s biggest headache at the moment and is the reason it dropped a rate-increase bias last year. The bank aims to keep inflation at 2 per cent, within a range of 1 per cent to 3 per cent. The rate has been below 2 per cent for 22 months.

The latest data will put to rest any lingering speculation that the bank may cut rates this year, said Benjamin Tal, senior economist at CIBC World Markets.

“So what we got now is actually very good news in the sense that nobody now is even dreaming about the Bank of Canada cutting interest rates,” he said.

“And that is exactly what the Bank of Canada wanted to see, suggesting this fear of disinflation that the bank was referring to was exaggerated and a lot of it was actually noise,” he said.

Bank of Canada Governor Stephen Poloz said on Tuesday he expected lower February inflation because of the effects of a sharp pickup in prices in the same month of 2013.

“Looking through the short-term volatility, inflation still seems to be running at around 1.2 per cent, give or take a tenth or two,” he said.

He reiterated the bank’s intention to continue a freeze on interest rates that has lasted more than three years, saying he could not rule out a rate cut but was not leaning in any particular direction either.

Analysts surveyed by Reuters forecast no move on rates until an increase in the third quarter of 2015, but traders had been pricing in a small chance of rate cuts later this year. Those bets were scaled back after the inflation data was released.

The Canadian dollar strengthened after the data, trading at C$1.1179 to the greenback, or 89.45 U.S. cents, stronger than Thursday’s close of C$1.1242, or 88.95 U.S. cents.

GASOLINE AND SHELTER

Gasoline prices rose 8.4 per cent in February 2013 but only by 2.3 per cent this year.

In the year, gasoline prices fell 1.3 per cent following a 4.6 per cent increase in January.

Canadians paid 2.2 per cent more for shelter than they did a year earlier as electricity, property taxes and rent went up. Food cost 1.1 per cent more, led by fresh fruit and meat, and transportation costs climbed 0.4 per cent.

On a monthly basis, the consumer price index rose 0.8 per cent and core CPI increased 0.7 per cent.

The news of strong retail sales in January was welcomed as a sign the Canadian consumer is still an engine of growth.

As with inflation, economists see the number as broadly in line with the bank’s outlook, although the bank has been calling for businesses and exporters to assume a greater role in driving growth.

“It’s a good number, but that number alone is not going to deter their broader view on the economy,” said Andrew Kelvin, strategist at TD Securities.

In January, six subsectors rebounded from lower sales in December, led by motor vehicle and parts dealers and building material and garden equipment supplies stores.