ECB survey sees lower inflation, higher GDP growth
Euro zone inflation may slow more than earlier expected in the coming years but economic growth and the drop in unemployment could exceed past projections, the European Central Bank’s Survey of Professional Forecasters showed on Friday. The ECB, which uses the survey in policy decisions, kept its ultra-easy policy unchanged on Thursday, calling for patience and persistence in getting inflation back up to its target. The survey, based on responses from 56 forecasters, sees inflation at 1.5 percent this year, 1.4 percent in 2018 and 1.6 percent in 2019, all 0.1 percentage point below previous projections made three months ago. The longer-term expectation for five years out was unchanged at 1.8 percent. “To two decimal places, however, these revisions were actually much smaller (typically less than 0.05 p.p.) across rounding thresholds,” the ECB said about the revisions. It added that the balance of risk to longer-term inflation expectations remained to the downside.
Brazil’s inflation falls to lowest in 18 years in mid-July
Brazil’s annual inflation rate fell more than expected in mid-July to the lowest in 18 years, piercing the lower bound of the official target range and
bolstering expectations of another deep interest rate cut by the central bank next week. The IPCA-15 consumer price index fell to 2.78 percent in the 12 months through mid-July, down from 3.52 percent in mid-June and below expectations in a Reuters poll for a rate of 2.87 percent, statistics agency IBGE said on Thursday. Consumer prices dropped 0.18 percent in the month to mid-July, down from an increase of 0.16 percent in mid-June, IBGE said. Yields on interest rate futures were down, indicating traders added bets on a 100-basis-point interest rate cut on July 26. The move would take the benchmark rate to 9.25 percent from 14.25 percent in October, offering relief to an economy just emerging from its worst recession on record. The government targets inflation at 4.5 percent, with a tolerance range of 1.5 percentage point. Brazil had overshot its goal by a wide margin for years because of a sharp increase in public spending. In early 2016, inflation nearly hit 11 percent.
U.S. yields flat as dismal auction offsets ECB’s easy stance
U.S. government debt yields were little changed on Thursday as buying tied to the European Central Bank’s pledge of easy money stemming from inflation concerns faded after a poor auction of 10-year Treasury Inflation-Protected Securities. Benchmark U.S. yields touched three-week lows in step with their German counterparts as ECB President Mario Draghi sought to reassure markets that the ECB was in no rush to pare its monthly asset purchase program amid speculation it might do so later this year. “Inflation is the main concern right now. Until something changes, it will rule the world,” said Thomas Roth, head of U.S. Treasury trading at MUFG Securities America in New York. Prior to the ECB’s policy decision, the Bank of Japan earlier on Thursday kept its rate target unchanged and downgraded its inflation outlook. Concerns over low inflation will likely keep the Federal Reserve from raising U.S. rates at its policy meeting next week, analysts said. Amid the ECB and BOJ’s cautious inflation view and last week’s disappointing reading on the U.S. consumer price index in June, investors gave a cold shoulder to the latest supply of TIPS, analysts said.