EU Inflation Lower than Expected – ECB Member Reaffirms 4 Rate Cuts
Inflation data printed lower than analysts’ expectations today, while ECB’s Wunch stated that 4 more rate cuts are likely
- Inflation YoY at 2.2% compared to forecasts of 2.3%
- ECB Wunch says appropriate market discounting 4 rate cuts
- A weaker euro would offset trade tariffs
The Eurozone stock markets recovered some ground today with the DAX up 0.20% and the CAC up 0.35% on the day.
Inflation Lower than Forecast
Today’s data confirms the ECB’s view that inflation is falling to the central bank’s target of 2%. YoY inflation came in at 2.2%, compared to forecasts of 2.3%. MoM inflation declined by 0.3% as expected.
The CPI for November also declined, slightly more than forecast, to 126.62 from last month’s 127.03.
DAX Live Chart
4 More cuts for 2025
The data keeps the ECB’s forecast of more rate cuts as inflation numbers confirm the downward trend. Today, the president of the Belgian central bank and ECB member, Wunch said that the market’s perception of 4 more cuts is appropriate.
The member sees the ECB’s main rate falling to 2% as inflation continues to decline to the 2% target. Investors are discounting 4 consecutive cuts of 0.25% from the current level of 3%.
The DAX and the CAC both reacted mildly to the bullish data as other factors still weigh on these markets.
A Weaker Euro to Offset Trade Tariffs
The ECB policymaker also mentioned that a weaker euro could offset trade tariffs that might be introduced under the Trump administration.
The EUR/USD has declined around 5% this year and a move to parity would mean a 10% drop. Wunch sees the devaluation of the euro making exports cheaper, compensating for a possible 10% tariff.
He also added that a weaker euro would also lead to imported inflation. If the case were to arise, the ECB might adjust its policy stance.
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