ECB Has No Option Than To Stay Put At Today's Meeting

Thursday, May 08, 2008

Conflicting inflation indicators peppered with a breakdown in Eurozone retail sales will probably tilt the governing council of the European Central Bank (ECB) to vote for an unchanged leading overnight interest rate, standing at 4% since June 17, 2007.
ECB president Jean-Claude Trichet will be happy to announce that Eurozone inflation moderated to 3.3% (3.6%) in April, according to Eurostat. It is questionable, though, whether this recent downtrend can persist. Industrial Eurozone producer prices continued their steep ascent, coming in at a monthly plus of 0.7% in March, raising the annual rate to 5.7% (5.3%) . In the EU 27 industrial producer prices advanced 6.7% (6.1%) YOY. Growing consumer and gasoline prices have begun to lead to a shift in consumption patterns. Europeans make a pass on shopping malls, stretching their incomes for the necessities of life.Retail sales dropped 1.4% YOY in March, posting the strongest decline since statistics begun in 2000.
In short, expect no action but more soothing words that inflation will moderate next year. We've heard that since 2005. While inflation would require higher rates in the Eurozone the ECB will certainly not mess with the current strengthening of Federal Reserve Notes that may lead to the 1.50 threshold within the next weeks.
In inflation were a real concern, and not the bailout of European banks flooded with all the liquidity they beg for, the ECB would take a rate hike step to restore its credibility as an inflation fighter and an inflation fighter only, as written in their mandate.


Wikinvest Wire