Inflation was already weak in the Eurozone last year, but it tumbled lower after the coronavirus hit, and in August, the headline CPI (Consumer Price Index) YoY fell to -0.2%, while the core CPI fell to 0.4%. Today, we saw inflation weaken further in all major European countries, coming up negative for the second month, which should have an adverse effect on the Eurozone CPI report, which is due for release tomorrow.

ECB president Christine Lagarde who commented on inflation earlier today, sort of accepts deflation, but she said nothing about the Euro, like Mario Draghi used to do, to send it crashing lower. However, tomorrow’s report should send the Euro lower.

ECB’s Lagarde Comments on Inflation

• Strategy review has yet to be concluded
• Too early to draw any firm conclusions on strategy review
• Policy must remain expansionary for as long as necessary, in order to achieve ECB goals
• To underpin inflation expectations, we need to ensure that our aim is symmetric
• A persistent failure to meet the inflation target can feed into inflation expectations
• We need to have a clear consensus – agreed by the governing councils – on what tools are available when inflation is too low
• March measures will increase inflation by around 0.8% cumulatively between 2020 and 2022, and GDP by 1.3% in the same period
• Make-up strategies can strengthen the capacity of monetary policy, in order to stabilize the economy when faced with the lower bound