It’s ECB day and the general belief is that it won’t do anything despite inflation dropping to 0.5 percent in March, chalking up its sixth successive month in the European Central Bank’s “danger zone” below 1 percent.
The reasons? Policymakers expect inflation to rise in April for a variety of reasons, one being that this year’s late Easter has delayed the impact of rising travel and hotel prices at a time when many Europeans take a holiday. Depressed food prices might also start to rise before long.
More fundamentally, they do not see any signs of deflation psychology taking hold, whereby businesses and consumers defer spending plans in the expectation that prices will cheapen.
Expect ECB President Mario Draghi to state a number of times today that inflation expectations are anchored, although quite how one proves that is an open question.
Nonetheless, the tone coming out of the ECB has shifted perceptibly over the past two weeks after Draghi suggested after the ECB’s March meeting that the bank would either do nothing or take bold action should the threat of deflation loom much larger.