Daily Archives: March 16, 2011

Headline inflation in the eurozone has been confirmed at 2.4 per cent in the year to February, a rise from 2.3 per cent in the year to January and a thorn in the side of ECB policymakers whose target is to keep inflation below but close to 2 per cent.

Measures of core inflation that strip out food, however, fell between January and February in the eurozone. “Core” inflation measures typically exclude one or more volatile elements, such as food or energy. Eurostat offers several measures. Those excluding just energy held constant, but those excluding energy and food, fell. A widely followed core measure, which excludes energy, food, alcohol and tobacco fell from 1.1 to 1 per cent. Unlike the Fed, the ECB does not tend to like looking at core measures. As one official said: it’s perfect for people who neither eat nor drive. 

Ralph Atkins

Will the earthquake in Japan delay the planned European Central Bank interest rate hike? Earlier this month – before the quake - Jean-Claude Trichet, president, hinted strongly at a quarter percentage point rise to 1.25 per cent in April. As this blog has already noted, financial markets think he might have to execute a u-turn.

I am not so sure. It is still three weeks until the next interest-rate setting ECB governing council meeting - so a lot could happen - and there is no need for its members to take any decisions just yet.  But the arguments for a rate hike have not necessarily changed. 

The night before a government debt auction, Moody’s concluded its review of Portugal with a two notch cut to their credit rating, which now stands at A3. The rating agency also left the sovereign issuer with a negative outlook, implying further downgrades are likely within two years if there is no improvement.

According to central bank forecasts, the economy will contract by 1.3 per cent this year, pushing Portugal into its second recession in three years. Citing subdued growth prospects and high borrowing costs, Moody’s actions might aggravate both issues today. Portugal is aiming to raise up to €1bn in 12-month Treasury Bills at auction and yields in the secondary market – an indication of the government’s cost of debt at auction – have risen this morning and remain near record highs