MADRID | By J.P. Marín Arrese | Pressure is mounting on the European Central Bank. Observers blame it for an overcautious approach to rate cutting. They openly express contempt at its reluctance in setting up aggressive asset-buying schemes. Even the IMF advocates an across-the-board cheap money stance. As the ECB fails to act when inflation rates sink far below the 2% target and credit is faltering, most believe Draghi remains hostage to hardliners in Germany.
SAO PAULO | By Marcus Nunes | That’s plainly absurd. But maybe it’s what you should expect if the Fed narrows down its focus of analysis to a “corner of the room (inflation) which has already been ‘cleaned-out’”.
FRANKFURT | By Dr. Beate Reszat | The other day, the New York Times provided us with an example of how fads and fashions can be used to draw attention to, and win acceptance for, an economic argument. In his article ‘In Search of a Stable Electronic Currency’ Nobel laureate Robert Shiller proposed the introduction of an inflation-indexed unit of account similar to the Chilean unit of development or unidad de foment (UF) which is existing since the 1960s. The article is in large parts a summary of the ideas of an academic paper the author published in 1998. In short, its main argument says that recent progress in computer technology has considerably widened the possibilities of inflation indexing which would allow for a better pricing, contracting and risk management in an economy.
MADRID | By Francisco López | In the midst of the markets’ euphoria thanks to the sharp fall in the risk premiums of peripheral countries, the big commander came and ordered to stop. The president of the ECB, Mario Draghi, appealed to investors to be cautious facing the risks of a “fragile and weak” recovery in the Eurozone and about an inflation whose expectations on the medium-term have worsened.
SAO PAULO| By Marcus Nunes|When the Fed ‘forgets’ its function of keeping overall nominal stability you may get different instabilities. If, as in the 1960s, it becomes mostly concerned with unemployment the result will be rising inflation.
LONDON | By Michael Gavin at Barclays | The 2013 sell-off in interest rates in the global currency areas has been driven entirely by perceptions that economic activity is on course to continue its recovery; inflationary pressures have been conspicuous only for their absence in all major currency areas except Japan, where the (still limited) pressure is welcome. This likely explains why equity markets in the advanced economies were so resilient to the backup in US and global rates and why the brunt of the 2013 bond sell-off was borne largely by the long end of the curve.
LONDON | By Michael Pond and Chirag Mirani at Barclays | Some at the Fed believe that a higher inflation target could be a good strategy, though one that is difficult to communicate. Instead, in our view, it has an implicit near-term tolerance for above-target inflation; forward breakevens should be higher as a result.
LONDON | By Barclays analysts | Taking into account today’s downward revision in Spanish HICP, we now revise our October French HICP forecast from -0.2% m/m (0.6% y/y) to -0.1% m/m (0.7% y/y). The Italian final October HICP inflation rate was revised up by 9bps to 0.76% y/y. We note that historical subcomponents indices have been revised since the beginning of the year (although not the headline index). This nonetheless does not alter our view that euro area HICP inflation rate should come in unchanged at 0.7% y/y. If anything, we see slight downside risk to our 116.99 HICP ex tobacco projection.
MADRID | By Francisco López | The market has changed their perception about the ECB’s monetary policy and it’s now anticipating a possible reduction of interest rates in the eurozone before end of the year or early 2014. The first consequence has been the depreciation of the euro, which has gone from 1.38 dollars, a two-year-maximum, to 1.35. The European currency suddenly depreciated, yet it still overvalued against the dollar.
SAO PAULO | By Marcus Nunes | One thing MMs have been saying for a long time is “stop talking about inflation”. But everyone else insists on doing so and now they are trapped.