German Inflation Unexpectedly Holds Steady, Backing ECB Cuts
German inflation unexpectedly remained unchanged in November, backing arguments for the European Central Bank to continue lowering interest rates.
Consumer-price growth in Europe’s largest economy held at 2.4% — below the 2.6% median estimate in a Bloomberg survey. A moderation in food costs offset energy base effects, according to statistics agency Destatis, and may explain the undershoot.
The data contrast with figures from Spain earlier Thursday showing faster price gains. Officials nevertheless expect the euro zone as a whole to see an uptick this month. Economists polled by Bloomberg forecast a reading of 2.3% after October’s 2%, which matched the ECB’s goal.
Investors and analysts see another quarter-point rate cut as almost assured at the final policy meeting of the year in two weeks’ time. Beyond that, some ECB officials want reductions at every meeting until the deposit rate hits 2%.
In a speech later Thursday in Paris, Bank of France Governor Francois Villeroy de Galhau said the ECB doesn’t need to constrain the economy any longer and may even have to lower rates to levels that promote growth.
While it’s too early to tell where borrowing costs will settle, he said there’s “significant room” to ease before they stop weighing on output, seeing another reduction in December as all but assured.
Others are more cautious. Speaking this week to Bloomberg, Executive Board member Isabel Schnabel highlighted sticky price pressures in the services sector, as well as still-acute geopolitical risks.
Borrowing costs can be lowered “gradually” to the so-called neutral level that neither stimulates not restricts economic expansion, she said, while warning against going too far for fear of squandering valuable policy space.
Source : Bloomberg
