Euro Area Inflation Unexpectedly Misses Despite Sliding Unemployment

The euro stumbled, dropping to session lows on Thursday after Eurostat reported that despite a welcome decline in Europe's unemployment rate to 8.8%, the lowest level in 9 years, Eurozone inflation missed expectations, rising from 1.4% to 1.5%, below the 1.6% consensus expectations, reminding the ECB that Phillips curves around the globe remain broken and that its intention to taper QE and tighten monetary policy may yet be derailed.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in November (4.7%, compared with 3.0% in October), followed by food, alcohol & tobacco (2.2%, compared with 2.3% in October), services (1.2%, stable compared with October) and non-energy industrial goods (0.4%, stable compared with October).

European core inflation (excluding food, energy and tobacco) remained unchanged at 0.9% in November, below the 1% median estimate by economists. The euro traded lower after the report, and was at $1.1829 at 11:44 a.m in Frankfurt.

Indeed, as Bloomberg reports, the latest price data "outline the dilemma facing the ECB." and even with the region’s economy set for the fastest growth in a decade and the most broad-based expansion since 1997, a sustained price recovery remains some way off. While policy makers have acknowledged that this development warrants less additional monetary support, ECB President Mario Draghi has advocated a “patient and persistent” approach to exiting the central bank’s stimulus program.

Despite inflation consistently undershooting expectations, policy makers have expressed confidence that economic growth and falling unemployment will eventually feed through to prices. "The solid and broad-based economic recovery in the euro area is continuing,” ECB Executive Board member Peter Praet said on Thursday in Brussels. “The breadth of the expansion is notable.” Despite

“All indications are that the recovery will continue for longer, and that would put pressure on wages and prices going forward,” Vitor Constancio said in an interview with Bloomberg Television on Wednesday. “It’s a gradual process, but we see it going in that direction.”

Governing Council members Jens Weidmann and Klaas Knot on Wednesday called for a more a decisive acknowledgment of the strengthening of the economy. “Evidence is mounting the economic outlook will be at least as good as previously forecast, if not even better,” Bundesbank President Weidmann said. “This development should continue for a while.”

Still the latest data means that when the ECB’s Governing Council next meets on Dec. 14, it will be faced once again with a picture of solid economic growth and subdued prices pressures. Policy makers announced in October that they will halve its current monthly pace of bond buying starting January and running until at least September.

“Absent deflation risk, a full phasing-out of net asset purchases from September 2018 onward is warranted,” Knot said in London.

Comments

Ghordius TheSilentMajority Thu, 11/30/2017 - 07:14 Permalink

evidence? links? an example of a product or a service?I call bullshit. if CPI was really 7%-10%, we would have huge demonstrations just now on every street in the eurozone. with big signs calling for "10% more salary, NOW" carried by workers. it's Europe, remember?besides, it would be governments, plural, then every single data is collected through a national statistical entity, and there are 19 of them, one for each nation state, and then aggregated by the european one

In reply to by TheSilentMajority

TheSilentMajority Ghordius Thu, 11/30/2017 - 08:11 Permalink

What rock did you crawl out from under?

The EU, just like the Fed, have manipulated the methodology to calculate their convenient non-threatening version of the CPI.

They no longer take full account of housing, healthcare, and educational expenses(the three biggest expenses for most folks) Nor do they account for the increase of shrink-flation.

This may help educate you.... http://www.shadowstats.com/alternate_data/inflation-charts

In reply to by Ghordius

BritBob Thu, 11/30/2017 - 06:20 Permalink

 The Crazy EU- GibraltarMEPs and legal experts have claimed the veto over the territory’s future after Brexit would give Spain special status among EU nation, when they should be on an equal level.The EU’s Brexit negotiating guidelines stated that the Brexit deal will not apply to Gibraltar without an “agreement between the kingdom of Spain and the UK”.Experts have told the Telegraph that the veto could be illegal under EU law.Spain's Gibraltar claim has NO legitimacy and YES would be illegal.They've effectively signed the territory away 3x times!Gibraltar – Spanish Myths and Agreements (single page): https://www.academia.edu/34608739/Gibraltar_Spanish_Myths_and_Agreements

Ghordius BritBob Thu, 11/30/2017 - 06:29 Permalink

britbob, the issues now - as per negotiations - are actually more on the part of "In or Out"? resulting in bordersthe question for the UK is, as per UK gov, clear: the UK out of the SM and the CUthat's not so clear for Northern Ireland, though. the whole island hates the idea of a hard border thereso the real question for Gibraltar, eventually, will be the same: in or out of SingleMarket/CustomsUnion?that's the bummer, actually. Gibraltarians prefer "In". it's the same Gibraltarians that voted in the tune of 96% for staying in the EU, after all

In reply to by BritBob

Ghordius Thu, 11/30/2017 - 06:24 Permalink

mehmy definition of price stability is... zero, or reasonably near to zerobankers... prefer 2%, or reasonably near to 2%"rising from 1.4% to 1.5%, below the 1.6% consensus expectations"oh, my, what tragedy/S. and this with a falling unemployment rate. you really got to be a banker to hate that. or a frustrated trader. or a punter on the myths around the eurozonedouble-meh

Davidduke2000 Ghordius Thu, 11/30/2017 - 06:37 Permalink

you still believe this shit, you talk as if you know something. inflation is caused by over demand, mostly on food and energy, both are in super high demand and the higher price is due to cost, there is no target or limit the bankers or the governments can do to influence the shit, and those 2 commodities are in short supplies and strong demand, the inflation is over 10% probably more. remember it is offer and demand nothing more.

In reply to by Ghordius

Davidduke2000 Thu, 11/30/2017 - 06:31 Permalink

who comes up with this shit and for who, what is the purpose, most people know it is bullshit and even if some idiots buy the propaganda, what next?? everybody worldwide feel the super high inflation when a cucumber is almost $2 and a loaf of bread is $3 if not more and in the EU countries you have to add value added taxes.unemployment is sliding, lol, lol, lol

new game Thu, 11/30/2017 - 06:56 Permalink

inflation defined: the weakening of the curency to create moar(debt) currency. also to devalue exisitng debt(currency). all while robbing the consumer of purchasing power. the fundamental question becomes, are wages keeping up? and at what interest rate are savers being rewarded? you know the answers, hence the definition of ponzzi scheme. the wealth is moving to the top tier via this scheme. still enough non-pain to keep the majority bustling about to chase a euro...same shit in merika.sorta simple shit maynard

Precious Hawk Thu, 11/30/2017 - 07:04 Permalink

Lowest level unemployment in nine years?I guess they don't count the millions of refugees. A drain on the economy, a rise in black market activity and increased exposure to health issues for the local.Somehow, I don't trust these figures.PH

Ghordius Catalonia Thu, 11/30/2017 - 07:40 Permalink

excellent question. my answer: never, at least not blindlymeanwhile, a different angle: in the US, you find excellent websites like "ShadowStat" which monitor the changes of the official US statisticshere: http://www.shadowstats.comin the eurozone, I found nothing similar, at least yet. not at this level, just sparse publications that look a bit iffybesides, there is more political pressure here on those 19 national statistical entities on both sides of the numbersan example for that was recently in Greece, where the chief of the Greek statistical entity was attacked for his office's projections, with a lot of consequencesand... Europe is famous for workers asking for more wages, whenever inflation is felt

In reply to by Catalonia

itstippy Ghordius Thu, 11/30/2017 - 08:37 Permalink

European inflation, as in the USA, is in assets not consumer goods.  The "inflation statistics" always focus on consumer goods, which gives a very distorted picture of what's really happening in the economy.Inflation is driven by too much money chasing too few goods.  The "too much money" is concentrated in the financial system, not in the working population.  The "goods" they are chasing are financial assets: real estate, stocks, bonds, rare art, that type of long term investment and store of wealth.  Young working people can feed and clothe themselves because inflation is not hitting consumer goods much.  They can't, however, build up any assets because the values have gone out of reach.  They can't buy homes or build up a decent retirement portfolio.When income imbalances hit levels where wealthy people have 100X the income of average working people they don't buy more bread and meat, they buy more assets.  The Central Banks have caused terrible wealth misallocation by flooding the financial system with oceans of "money".  The consequences aren't very fair for 90% of the population.

In reply to by Ghordius

MagicMoney Thu, 11/30/2017 - 11:23 Permalink

The Philips Curve - It doesn't work.Euro Zone is a productive zone. You could probably argue disinflation. Afterall that is what productive economies do they make things cheaper in a downward manner. UK, on the other hand, was begging for the effects of inflation while easing in wake of Brexit where the pound would have depreciated naturally.  The central banker thinking is that you need to expand to prevent a recession.