Inflation Jumps in Europe but the Euro Still Slides
Inflation made a reversal in May in Europe and jumped 3 points higher, while core CPI jumped 4 points higher
Inflation has been weakening in the Eurozone for about a year but in the last several months, the decline picked up pace and in March headline CPI (consumer price index) fell to 1.4% from 1.6%, while core CPI fell to 0.8% from 1.0%. That added more negativity to the Euro after manufacturing has already been in contraction for some time.
Today, inflation was expected to come back to normal. Headline CPI was expected at 1.6% while core CPI was expected to come back to 1.0%, which is the minimum target for the European Central Bank. Below that level, the ECB panics and we saw a few ECB members in the last few weeks sounding quite pessimistic about inflation.
But we got a surprise today as headline CPI jumped three points to 1.7% in April from 1.4% in March, while core CPI jumped four points higher to 1.2%. The jump in core inflation is quite surprising and the ECB should be a bit more relaxed now. Core CPI is at a six month high now, but there is a catch.
There is some upside bias in April because of the seasonality of the Easter holiday period. So, we should at least wait for May’s numbers to come out before getting too excited. The Euro is not getting excited as a matter of fact, as it keeps sliding lower.
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