Euro Area annual inflation fell to 2.5% | Merkel-Sarkozy Reject Euro Bonds

The Euro Area CPI  fell to an annual rate of 2.5% during July 2011. This is a slight decrease form the June inflation rate of 2.7% (Y-2-Y).

News update from today:

The Merkel-Sarkozy Summit didn’t resolve the debt crisis in Europe as the leaders couldn’t reach an agreement in issuance of bonds by the common currency region. Despite this disappointing news, it didn’t affect much the Euro, but this news might be among the daily factors to push major commodities prices up.

The EU inflation rate during July reached 2.9%, a decrease from 3.1% during June.

Among the Euro Area countries with the highest inflation rates were Estonia (5.3%), Romania (4.9%), and Lithuania (4.6%).

The lowest inflation rates were recorded in Ireland (1.0%), Slovenia (1.1%) and Sweden (1.6%).

The two biggest economies in Europe: Germany and France recorded an annual inflation rate of 2.6% (up from 2.4% in June) and 2.1% (down from 2.3%), respectively.

Among the major components that contributed to the CPI to remain high were transport (5.5%) and housing (5%).

This slight decline in the Euro Area inflation might be among the reasons for the decline in the Euro against major currencies including the US dollar. Furthermore, following the recent report of the disappointing growth rate GDP of Euro Area and in particular of Germany, this news puts into question the Monetary policy of ECB in 2011: earlier this month, ECB kept the basic interest rate unchanged at 1.5%, after two raises this year. These rate hikes along with ECB’s handling of the European debt crisis might have contributed to the economic slowdown in Euro Area. All these news items might cause a shift in ECB’s rate decision in the months to come.

As seen in the chart below, the decline in the inflation might be due, in part, to the hike in the Euro basic interest rate a couple of months back.

CPI EURO AREA 2008-2011 (Y-2-Y) & Basic Interest Rate of ECB AUGUST 17

Euros to USD is currently traded up by 0.1947% to 1.4435 as of 10:48*.

Current Nymex crude oil price, short term futures (September 2011 delivery) is traded up by 1.29%, at $87.77 per barrel as of 10:44*.

Current gold price, short term futures (September 2011 delivery) is traded at $1,795.60 per t oz. a 0.59% increase or as of 10:37*.

(* GMT)


For more on this subject:

Gold and silver prices outlook for August 2011

Weekly outlook for August 15-19

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