Europe, according to data arriving from France, Germany, Portugal and Spain, may have passed the peak ofinflation. And markets appear to be hoping that this translates into an easing of policy tightening BCE, as demonstrated by the decline in the yield differential between the German Bund and the bonds of Italy and Spain. But to be convinced that the “doves” within the executive council of the Eurotower now have convincing arguments available to counter the “hawks” risks being a gamble. In fact, analysts point out that the reduction of energy quotationswhich is favoring the drop in overall price indices, is not enough to declare the narrow escape: in the meantime, thanks to the delay with which the ECB itself has moved, the increases have “infected” the rest of the economy and the so-called core inflation – that excluding energy and food – remains too high. Economists therefore continue to bet on others two rate hikes in February and March.
Good price data in Spain, Germany, Portugal and France… – Hopes for a rethink have been fueled in recent days by the slowdown in price growth recorded in Spain and Germanywhere in December the inflation rate stood respectively at 5.8 and at8.6% compared to +6.7% and +10.3% in November. A slight decline was also seen in Portugal (+9.6% from +9.9 in November). The data relating to the France: according to the national statistical institute, the consumer price index rose year on year last month by 5.9% against +6.2% in November, thanks to the drop in the prices of‘power and to a lesser extent services, against the expected +6.4%. Thursday theIstat will disseminate the data for theItaly and the reduction of gas quotes below 90 euros in the second part of the month suggests that it will no longer be double-digit, after +11.8% in October and November.
…but core inflation remains high – Positive signals which, someone hopes, will inevitably influence the next decisions of the BCE which starting in July started a heavy squeeze aimed at curbing demand precisely to contain the rise in prices. Hence the sharp decline in the spread BTP-Bund, dropped to 199 basis points (-10 compared to Tuesday’s close) after the flare-ups of recent weeks, and the one between the Spanish Bund and Bonos. In fact, more and more analysts are expressing doubts about the evolution of monetary policy, given that by now half of the European Union is taken for granted recession during the year: if the objective was “destroy question“, in short, we can say achieved. But does the (relative) cooling of inflation really strengthen the position of the “doves” on the board? And it could lead the Eurotower to review the decision to raise i again taxi like the president Christine Lagarde had anticipated in mid-December? We need to look deeper, as the Financial Times: the data also say that “while energy prices have reduced general inflation, pressures on the prices of other goods and services have remained unchanged or have continued to grow. Core inflation rose in Spain and Germany reported higher services inflation.
The delays of the ECB and the position of the “hawks” – For this reason, economists continue to expect two more rate hikes of 50 basis points, up to 3%, in the coming months. Modeled on what the US Fed, which remains extremely hawkish despite five consecutive months of inflation case. “The February decision is written in stone,” he says for example a Bloomberg Piet Christiansen, chief strategist of Danske Bank. An outcome also undoubtedly determined by the long months in which the ECB – as Lagarde herself admitted – wrong predictions insisting that inflation was temporary, except to collide with reality (worsened by the Russian invasion of Ukraine): consumer prices that in the Eurozone have progressively risen throughout 2022, with a peak of +10.6% in October, thanks to the transmission of energy price increases to commodities and food. Mistakes that now reinforce the beliefs of hawks like Klaas Knot, president of the Dutch central bank, who warned a week ago: “The risk that we do too little is still the biggest risk. We are alone at the start of the second half“.
The risks for Italy and the doubts about the shield – On the dove side there are, on the other hand, fears about the impact that too harsh a squeeze could have on the “weak link” of the euro area: Italy. The poll made noise on Tuesday financial times according to which 9 out of 10 economists believe that it is the euro area country most at risk of one debt crisis such as that of 2011 in the face of rate hikes and the decline in bond purchases by the ECB. Certainly not a surprise: the debt/GDP of the Peninsula is the highest in the area with the exception of Greece and this year Rome will have to place on the market medium and long-term securities for an amount between 310 and 340 billion euros gross (against less than 280 in 2022) taking into account a sharp increase in the returns requested by investors. The average cost at issue, according to the Public Debt Management Guidelines published by the Treasury ten days ago, in 2022 it was equal to 1.71% against 0.1% in 2021, and the average cost of debt has risen to a level “around 2.9%”.
But the result of the survey is a clear signal of the fact that the activation of the “spread shield” presented last July by the Frankfurt institution, a program of unlimited purchases of government bonds to bring the yield differential under control. In theory it will be triggered automatically, but it is conditional on the adoption of “sound and sustainable fiscal and macroeconomic policies” and on the sustainability of the debt assessed by the Commission, the IMF, the ECB and the Mes. More than two-thirds of economists polled since ft they said to expect it to never be used.
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