Euro-Zone Consumer Price Inflation Rises Less-Than-Expected

Overview

The Euro-Zone CPI estimate for January increased at an annualized pace of 1.0% amid expectations for a rise to 1.2%, adding further speculation that the European Central Bank will not raise interest rates at its next rate decision meeting on February 4th, 2010 as the ongoing weakness in the domestic economy continues to weigh on growth and inflation. Meanwhile, the region’s unemployment rate rose to 10.0% in December from a downward revision of 9.9%, and households may keep a lid of spending as they continue to face a weakening labor market paired with tightening credit conditions.


Charts Prepared by Michael Wright

Forecast

The Euro-Zone economic recovery is expected to be weak and uneven as tumbling domestic demand counters a revival in exports. Indeed, Europe’s emerged from the worst recession in more than six decades in the third quarter amid government support, but rising unemployment and surging budget deficits are sure to keep the region in a phase of a “protracted” recovery, ECB council member Axel Weber said earlier this week. Adding onto the Euro-Zone’s financial woes with Greece, yesterday Moody’s said that Portugal needs credible plans to deal with the deficit reduction to avoid downward rating pressure, while Spain’s unemployment rate climbed to 18.83% in the fourth-quarter from 17.93% during the previous three-month period amid expectations for a rise to 18.50%, to mark the highest level jobless claims in the euro region. Nevertheless, European Central Bank President Jean-Claude Trichet said that it is “essential” for the governments operating under the single-currency to have a credit plan to normalize public finances, and went onto reiterate that a strong U.S. dollar policy “also corresponds to the overall superior interest of the global economy.”

Written by Michael Wright, DailyFx Research
Questions? Comments? Email me at mwright@fxcm.com