Daily Insight
Group Economics Macro & Financial Markets Research
20 May 2016
ECB worried about inflation expectations Aline Schuiling Senior Economist
bank’s readiness to ease policy further …
Tel: +31 20 343 5606 aline.schuiling@nl.abnamro.com
ECB account of April’s monetary policy meeting underlines the central
… as the risks to economic growth remain tilted to the downside …
... and the central bank worries about low inflation expectations and secondround effects of low inflation on wage and price setting
We continue to think that the ECB will probably further step-up and lengthen its QE programme in the second half of this year
ECB still sees downward risks to the growth outlook … The account of the monetary policy meeting of the ECB’s Governing Council of 20-21 April underlines that the central bank remains in an easing mode. The economic outlook remained one of ‘moderate economic recovery, despite the fact that growth dynamics in the first quarter of 2016 were somewhat stronger than expected before’. According to the ECB the ‘risks to the growth outlook had moderated to some extent, but they were assessed to still remain tilted to the downside’. Meanwhile, global indicators continued to suggest subdued global growth. … and worries about low inflation expectations … With regard to inflation, the central bank assessed that ‘neither the annual rate of the HICP excluding food and energy, nor other measures of underlying inflation, showed clear signs as yet of a more dynamic upward development’. The Governing Council also considered that it was ‘worrisome that, despite the stabilisation in oil prices, marketbased inflation expectations had not picked up from their low levels’. According to the central bank it appeared that ‘some decoupling of inflation expectations from oil price developments had taken place’, which ‘in principle was welcome, but in the current context was a matter of concern’. Moreover, ‘nominal wage growth had stabilised at low levels’. This was seen as a possible indication of the prevailing risk of second-round effects, whereby ’low headline inflation might already have started to feed into core inflation via lower wage growth’. Still, conclusive evidence was lacking and more analysis would be needed to assess whether this was indeed the case.
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Daily Insight – ECB worried about inflation expectations – 20 May 2016
Eurozone inflation and ECB target %
4 3 2 1 0 -1 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Total Core rate ECB target Source: Bloomberg
… implying that the door to further policy easing is open The Governing Council felt that in the current environment it was important for monetary policy to ‘counter strongly any emergence of second-round effects in price and wage setting’, implying that ‘it was essential to preserve an appropriate degree of monetary accommodation for as long as needed’. Indeed, we think that the ECB will probably need to ease policy further as inflation is still set to undershoot its target for a long time. We do not think further monetary stimulus measures will come until the second half of the year (likely in September), as two of the main measures the ECB announced in March (the TLTRO II and the corporate sector purchase programme) will not be implemented until June. We think that eventual further easing will take the form of a step up and extension of QE. Although a further modest deposit rate cut seems possible, this step may only be taken if there is a significant uptrend in the euro.
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Daily Insight – Fed Minutes open door for June rate hike– 19 May 2016
Day
Date
Time
Country
Key Economic Indicators and Events
Period
Latest outcome
Consensus
Saturday Saturday Saturday Saturday
14/05/2016 14/05/2016 14/05/2016 14/05/2016
00:25 07:30 07:30 07:30
US CN CN CN
Fed's Williams speaks (nv) Retail sales - % yoy Industrial production - % yoy Fixed investments - % yoy
Apr Apr Apr
10.1 6.0 10.5
10.6 6.5 11.0
Monday Monday Monday
16/05/2016 16/05/2016 16/05/2016
14:30 16:00
US US RU
Empire State PMI - Manuf. general business conditions - index NAHB home builders' confidence index GDP - % yoy
May May 1Q A
-9.0 58 -1.2
6.2 58 -1.9
4.0 59 -2.0
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016 17/05/2016
01:00 06:30 09:45 10:30 14:30 14:30 14:30 14:30 14:30 15:15 18:00 19:15
US JP EC GB US US US US US US US US
Fed's Kashkari holds town hall (nv) Industrial production - % mom ECB's Praet speaks on economics reforms CPI - % yoy Housing starts - % mom Inflation excl food and energy - % mom Inflation excl food and energy - % yoy Inflation (CPI) - % mom Inflation (CPI) - % yoy Industrial production - % mom Fed's Williams and Lockhart discuss economy (nv) Fed's Kaplan in moderated Q&A (nv)
Mar F Mar F Apr Apr Apr Apr Apr Apr Apr Apr Apr
3.8 3.6 0.3 6.6 0.2 2.1 0.4 1.1 0.7 -0.6 -0.6
0.5 2.3 0.2 2.1 0.4 1.1 0.3 0.3 0.3
0.2 2.0 0.3 1.0 0.3 0.3 0.3
Wednesday Wednesday Wednesday Wednesday Wednesday
18/05/2016 18/05/2016 18/05/2016 18/05/2016 18/05/2016
01:50 10:30 10:30 11:00 20:00
JP GB GB EC US
GDP - % qoq Change in claimant count - thousands Claimant count unemployment rate - % Core inflation - % yoy Fed releases minutes from April 26-27 FOMC meeting
1Q P Apr Apr Apr F Apr F
0.4 -2.4 2.1 0.7 0.7
0.1 1.2 2.1 0.7 0.7
Thursday Thursday Thursday Thursday Thursday Thursday Thursday
19/05/2016 19/05/2016 19/05/2016 19/05/2016 19/05/2016 19/05/2016 19/05/2016
01:50 07:30 07:30 10:30 13:30 14:30 16:30
JP NE FR GB EC US US
Machinery orders private sector - % mom Unemployment rate Unemployment (mainland France) - % Retail sales - % mom ECB Account of the April monetary policy meeting Philadelphia Fed - business confidence - index Fed's Dudley speaks (v)
Mar Apr 1Q Apr
5.5 6.4 9.9 1.3
-1.2
May May
-1.8 -1.6
2.8 2.8
2.0 2.0
Friday
20/05/2016
16:00
US
Existing home sales - % mom
Apr
5.1
0.8
1.0
ABN AMRO
6.5 0.4
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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