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Poor inflation data intensifies pressure on the ECB

Data released earlier today showed euro area headline inflation fell back in February to a one-year low of -0.2% y/y, while core inflation slowed to 0.7% from 1.0%. February's drop in euro-zone CPI inflation back into negative territory piles pressure on the ECB to deploy more stimulus at next week's council meeting.

Data liekly causes causes jitters at the ECB, which fears "second round effects from the oil price decline" because trade unions would in the future demand fewer wage increases due to the lower energy prices, which are increasingly reflected also in the core rate of inflation. The ECB Council may now decide rather more than fewer additional expansionary measures next week.

Societe Generale Economics forecasts 20bp cut in the deposit rate, introduction of two-tier interest rate charge on excess reserves, extension of the 3y TLTRO at March ECB meet.

 

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