NAGA analyst on Eurozone inflation: This is likely to trigger a more restrictive monetary policy from the ECB for two reasons
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Yesterday Eurostat released inflation data. Year-on-year consumer price index came at 8.5% beating expectations. Let's have a detailed look at the data with Michalis Efthymiou, Market Analyst at NAGA.
Previously, the European economy was successfully able to bring down the overall inflation rate down from 10.6%, but struggled to bring down core figures. The core CPI figures are mainly related to services as they do not include food, drinks and energy. However, the region is growingly struggling to bring down inflation and has been unable to stop core inflation figures from rising.
This is likely to trigger a more restrictive monetary policy from the ECB for two reasons. First is that the ECB will be looking to put further pressure on demand in order to bring inflation down and second in order to protect the value of the Euro as other central banks are also battling with resilient inflation levels.
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The Euro’s price movement is less certain as the Federal Reserve also is considering a more restrictive stance and the Dollar’s safe haven status is again coming into play.
However, higher interest rates have a clear effect on the stock market such as the DAX, CAC and IBEX. If the ECB’s terminal rate does increase to 4% and above, the stock market will be pressured by less consumer spending, an increase in the cost of debt and higher bond yields.
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