Inflation has been declining across the globe as the economic slowdown continues to pick up pace. In the Eurozone, everything has been deteriorating, from manufacturing and industrial production to services. Inflation has also been weakening considerably this year. We saw a jump in April, but that was due to the Easter weekend.

Last month, inflation returned to the declining trend and it declined even lower than what we saw in March, before the short-lived jump in April. Headline CPI (consumer price index) fell from 1.7% to 1.2%, losing 5 points, while core CPI also lost 5 points falling from 1.3% to 0.8% last month.

The European Central Bank turned even more dovish after those really weak inflation figures and they mentioned rate cuts again. Now the markets are pricing in two rate cuts of 10bps until the end of this year. So, today’s inflation report will be pretty important for the ECB.

If we see another soft report, then the ECB will definitely head towards rate cuts in the coming months and the Euro shoiuld turn bearish again. Yesterday’s soft inflation number from Spain was a signal that the Eurozone inflation for this month might come out weak again, so watch out if you are long on the Euro.
Headline CPI came out unchanged at 1.2% this month, but core CPI jumped 3 points higher to 1.1% from 0.8% last month. This should calm some nerves at the ECB but the Euro is not minding this number much now; we have to wait for the coming months and see if it will remain up here or whether it will reverse back down.