EU Inflation and GDP Data… Good But Is It Good Enough For the ECB?

If you have noticed, during September and particularly during this month, the Eurozone economic data has shown a pick-up in the economic activity at last. We have mentioned this many times in the last few weeks because, although this is not exactly what the ECB (European Central Bank) would wish for, it is still quite a huge shift. 

 

The Eurozone economy was almost knocked down to the floor a few months ago, while now it is in a good enough position to lure the ECB into thinking that perhaps they need to change the monetary policy. However, the economy hasn't yet reached those levels, so the ECB decision is data dependent. 

 

A while ago, the EU inflation and the GDP figures were released. Were they good enough for the ECB to make up their mind? 

 

Let's see. Both the main inflation number (CPI) and the core inflation (core CPI), which strips out energy prices in particular (oil and gas), came out as expected at 0.5% and 0.8% respectively. This is not exactly what we would see in a normal economy, but the world economy hasn't been normal in about a decade and, in some cases like Japan, this has been going on for about three decades. 

 

So, they are not great but they're not that bad either. However, what do these numbers mean for the ECB and the Euro? 

First off, the Euro just doesn't care; it has been trading in a tight 15 pip range the whole morning. This sort of price action, particularly after the release, tells us that this round of data doesn't shift the balance on either side. The flash Q3 EU GDP, which I forgot to mention, came out at 1.6% and this number is not a game changer either. 

 

My take on this? There are still five months left until the end of the current QE (quantitative easing) program and two more months until the December meeting. Therefore, a lot of things might change until then. Looking at the cards we have on our hands at this moment, I can strongly say that Draghi will keep the QE program going on a little longer beyond March. 

 

There will be many uncertainties and highlights in the ECB December statement. This is because even if inflation gains every month, it will be nowhere near the 2% target. This is neither positive nor negative for the Euro, unless the EU economic data changes dramatically until December. Beyond December, things might complicate a bit as March approaches and the ECB might change their position 180 degrees. Nothing is set in stone, particularly when it comes to central banks. That´s why we don´t bet our houses on their word. I don´t expect any big surprises until December and today´s inflation and GDP number don´t change anything.