Bruno Cavalier (Oddo-Bh) | In January, inflation in the Eurozone jumped by 1.2 points to 0.9% yoy, largely due to the increase in VAT rates in Germany. Later this year, the ECB’s target inflation rate of 2% is likely to be exceeded. After the compression of some prices in 2020, the base effects are expected to be very strong. The ECB has no reason to react to a bump in inflation, but since Christine Lagarde has accustomed us to a convoluted message to please the “hawks”, we cannot exclude the possibility of the ECB getting muddled up in its communication.
Miguel Ángel Tramullas | Investment in public debt has traditionally been one of the most popular fixed income assets with both retail and institutional investors. It’s considered as a safe-haven. But in the last few years, it has lost part of its attraction because of lower interest rates which in some places are now in negative territory. To protect themselves, many countries like the US, Japan, the UK, France, Italy and also Spain have begun to issue inflation-linked bonds.
LONDON | By Barclays analysts | In a surprise move, the ECB cut the refi rate by 25bp to 0.25% and left the deposit rate unchanged at zero. It also extended its fixed-rate, full-allotment facility to all refinancing operations by one year, at least until mid 2015. The ECB clearly signalled that it is concerned about persistently low inflation, even if deflation risks are contained. We will only know more about how long the ECB thinks low inflation will last next month when it publishes its macroeconomic forecasts. We see euro area inflation in 2014 dropping to 1.0% from the forecast 1.4% this year.