Back to price stagnation from anaemic inflation in the euro zone?

September 30, 2015

Euro zone inflation data due at 0900 GMT are expected to show that prices stagnated, highlighting the persistent risk of outright deflation amid the slump in commodities prices. They come after the ECB’s preferred measure of inflation expectations — the so-called five-year, five-year break-even forward showing where investors expect 2025 inflation forecasts to be in 2020 — hit its lowest point since February, i.e., before the bank launched its bond-buying stimulus programme in March.

While some in the markets argue this only adds to the case for more QE, the Bundesbank’s Jens Weidmann fired back with a warning that too much cheap money for too long would lead to market bubbles and “zombie” companies kept afloat only by the low cost of borrowing. Separately, the Swedish central bank is meeting outside normal rate-setting schedule. Could the Riksbank ease its policy again? The central bank said at its last meeting when it left rates unchanged that it was ready to act should prices flag.

French President Francois Hollande has just got a boost of sorts for his efforts to kick-start the economy in time for the 2017 election — the country’s public finance watchdog this morning said his forecast of relatively healthy 1.5 percent growth for next year is now do-able. That’s important because it is at that level that the French economy is generally considered capable of generating new private sector jobs. Looking for more insights into what nonetheless remains a fairly anaemic economy with today’s presentation of the 2016 draft budget bill to parliament.

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