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Euro-zone inflation disappoints at 0.8% – ECB to hint on

The initial Consumer Price Index read for December stands on 0.8%, year over year. It was expected to show a year over year price rise of 0.9%, the same as in November. In October, data surprised to the downside, with 0.7%, and this triggered the rate cut by the ECB. German HICP showed a y/y rise of 1.2%, below 1.6% announced in November and below 1.4% expected. The outcome could trigger more warnings from Mario Draghi. especially as core inflation is down to 0.7%.

EUR/USD was trading steadily at around 1.3625 before the release. The initial reaction is limited.

Inflation excluding energy is now 0.9%, down from 1.1% in November. Inflation excluding energy, food, alcohol and tobacco is at only 0.7%, down from 1.1% and the lowest in a long time.

Core inflation is below the 0.8% level seen in October, when CPI fell to 0.7% and the ECB cut the rates. This will make it harder for Draghi to deny the possibility of deflation.

PPI disappointed by dropping by 0.1% month over month instead of rising 0.1% as expected. Year over year, PPI is down 1.2%, less than 1.3% in November.

Earlier, German data surprised to the upside. Retail sales rose 1.5%, beating expectations for a rise of only 0.5%. In addition, Europe’s largest economy reported a drop of 15K in the number of unemployed, also better than a small drop of 1K expected.

EUR/USD has recently lost uptrend support but didn’t go too far, as the all-important ECB rate decision is awaited on Thursday.

For more on the euro, see the EURUSD forecast.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.