January 24, 2018, 9:42 am
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Euro zone inflation slows

BRUSSELS/FRANKFURT- Inflation in the euro zone slowed as expected in December, vindicating the European Central Bank’s decision to keep its policy easy despite growing pressure from Germany and other richer euro zone countries.

The ECB has said it would continue buying bonds at least until September and keep rates low well after to raise inflation to its two percent target. But policymakers from the Netherlands, Germany and other northern countries have voiced their worries about an overly easy policy while economic growth is strong.

Prices in the euro zone grew by just 1.4 percent year on year last month, or 10 basis points slower than in the previous month due to smaller increases in food and energy prices. Once those components are stripped out, so called “core” inflation was stable at 1.1 percent.

“There is no great pressure on the ECB to unwind QE,” Kenneth Broux, a market strategist at Societe Generale, said.

The slight deceleration in headline inflation had been expected by the ECB and by market economists polled by Reuters.

But a stronger-than-expected German inflation reading of 1.6 percent last week raised market speculation about an upside surprise in euro zone price growth on Friday.

After the data the euro traded just below a four-month high of $1.2089 hit on Thursday, consolidating a rally that may prove a headache to the ECB by making euro zone imports cheaper and exports dearer.

“The euro is not helping above $1.20 because it should delay inflation returning to target,” Societe Generale’s Broux said.

The ECB is due to hold its next policy meeting on Jan 25 and investors will look for any sign of discomfort with the euro’s strength in Mario Draghi’s press conference. 

Meanwhile, French consumer confidence rose more than expected in December, returning to a 10-year high reached in July after the election of president Emmanuel Macron, data from the official INSEE statistics agency showed on Friday.

INSEE’s monthly consumer confidence index rose to 105 last month from 103 the previous month, which was revised up from a preliminary reading of 102.

The December reading topped the average estimate of 103 in a Reuters of poll of 12 economists and was the highest since July, when confidence surged to its highest level in a decade after the May presidential election.

INSEE’s survey found that while households’ concerns about unemployment had ticked higher last month, their assessment of their general economic situation rose to the highest level since December 2002. – Reuters 
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