Inflation Report In The Euro Zone Ahead Of Us, Will The ECB's Actions Bring The Expected Results?

Next week there are some very interesting economic data releases that investors will pay close attention to. Data on inflation in the euro zone stand out in the foreground.

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CPI Forecast

Eurozone inflation is expected to increase from 8.5% to 8.6%. Core CPI will remain unchanged at 5.2%.

The ECB believes that the easing pressure from energy prices and other costs, together with the ECB's monetary policy measures, should bring inflation back to the 2% inflation target.

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Source: investing.com

Economic situation

European officials breathed a sigh of relief on Monday after new data suggested the region would avoid an economic recession.

Back in November, the European Commission, the EU's executive arm, warned that the eurozone could enter a recession — defined by two consecutive quarters of falling economic performance. However, on Monday, the institution said thanks to government support and a reduction in energy costs, this is no longer the case.

The outlook for this year is also brighter with a projected GDP rate of 0.9%, compared to a growth rate of 0.2% projected just three months ago.

EU interest rates

Despite the good news, finance ministers have plenty of work to do in the coming months.

European governments have adopted loose fiscal policies since the outbreak of the coronavirus pandemic in 2020 — it was argued at the time that nations could not focus on lowering debt levels or correcting deficits because they needed to support their economies in such an extraordinary economic shock.

The same argument was used after the Russian invasion of Ukraine, when governments helped with energy bills, among other things.

“In view of the underlying inflation pressures we intend to raise interest rates by another 50 basis points at our next meeting in March,” Lagarde told lawmakers at the European Parliament.

She added it would then evaluate the subsequent path for monetary policy, reiterating the message the bank delivered after hiking rates by a half percentage point on February 2.

The ECB will publish updated economic forecasts at its March meeting, which will help it formulate the course for monetary policy.

If the central bank goes through with the half-point hike in interest rates, it would be its sixth increase since July for a total increase of 3.5 percentage points.

ECB Executive Board member Fabio Panetta said on Thursday that the ECB should consider the risks of over-tightening the policy and argued that the bank should not unconditionally pre-commit to future policy moves.

On a more neutral note, ECB Chief Economist Philip Lane said that he is open-minded about the precise scale of the monetary policy tightening that will be needed to achieve the inflation goal.

Other reports

In the coming week there will also be other reports from the euro zone. PMI surveys may be more meaningful as they will be lightning fast readings that will continue to paint a picture of how well the block is holding up.

Source: investing.com