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Ecb looks to inflation data { March 7 2004 } Original Source Link: (May no longer be active)
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Inflation data may give clues to ECB thoughts
Chris Flood
Published: March 7 2004 12:06 | Last Updated: March 7 2004 12:06
The decision by the European Central Bank to leave interest rates unchanged last week will have come as little surprise to many observers. Understanding what is driving the ECB’s thinking is more difficult.
Klaus Baader, of Lehman Brothers, says: “The absence of any hint or indication that the ECB acknowledges that downside risks to growth and, most importantly, to inflation have increased over the past quarter was unexpected. The ECB’s press conference on Thursday failed to provide any insight into the evolution of ECB thinking.”
This week’s brings output and inflation data should provide further food for thought for policymakers and economists.
February inflation reports are due from Spain and the Netherlands on Thursday and from France on Friday. These are expected to show that underlying inflationary pressures are easing quickly.
However, the headline figures may be affected by one-off effects from tax changes and administered price rises.
Today brings Germany’s industrial output data for January. Industrial output data for the Netherlands are due on Wednesday. France will release its data on Friday. Until recently, forward-looking survey evidence had suggested strengthening activity in the sector.
This appears to have fed through to the official data with a sharp pick-up in year-on-year growth in manufacturing output in December for Germany and France.
With survey indicators such as the German IFO index softening in February, questions are already being asked as to how sustainable the upturn will be in the next few months.
The industrial sector in the Netherlands is much weaker, with the year-on-year decline in manufacturing output accelerating in the past three months.
In the UK, today brings producer prices data. Sterling's appreciation is expected to push down input prices in February but core output prices are forecast to record another 0.2 per cent rise.
Trade-weighted sterling has appreciated by almost 5 per cent in three months. The impact of the currency’s rise could be in focus again after last month's trade deficit when with the European Union’s rose to a record £2.8bn, the result of a 5.5 per cent jump in the volume of underlying imports. However, in global terms, weakness in trade with EU has been offset by a surge in exports to the US.
With January’s trade data due tomorrow, questions to ask are whether there has been some rebalancing or if these short-term trends will continue. January’s data for industrial production is also due tomorrow. The official data has been lagging behind survey evidence but Deutsche Bank forecasts an increase of 0.3 per cent for industrial production and manufacturing output as the recovery feeds through.
In the US, February retail sales data on Thursday and the preliminary Michigan consumer confidence data for March, due on Friday, will provide more further evidence on consumer strength, while business inventories data on Friday is an important indicator of recovery in the industrial sector.
The impact of the weaker dollar will show through in the January data for international trade, due on Wednesday. The US is due to release data on its current account on Friday and economists will be looking at the capital account details to assess recent trends in foreigners’ purchase of US treasuries, which could shed light on the dollar’s outlook.
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