EEu­ur­roo uun­n­m­moovveedd aass GGeer­rm­maann iin­nf­fllaat­ti­ioonn ccr­raat­teerrss

Financial Mirror (Cyprus) - - FRONT PAGE -

Cyprus showed a mas­sive drop on Mon­day as the con­sumer price in­dex came in at -1.5% year-on-year against 0.2% in Novem­ber and -2.3% in De­cem­ber 2013.

The CPI for De­cem­ber was down 1.88 points or 1.6% drop­ping to 115.77, com­pared to 117.65 the pre­vi­ous month.

The sta­tis­ti­cal ser­vice Cy­s­tat said the drop was due to lower prices in fuel, elec­tric­ity bills, some fresh vegetables, some cloth­ing and air faires.

For the 12-month pe­riod Jan­uary to De­cem­ber, the CPI was down -1.4% from the year be­fore.

“Con­sid­er­ing the moves overnight it might be a bit sur­pris­ing that EUR/USD hasn’t moved again on the lat­est in­fla­tion num­bers,” said Ryan Lit­tle­stone of ForexLive.com.

“The year on year num­bers so far from Ger­many have dropped dra­mat­i­cally. On top of that we had the Span­ish flash y/y HICP back on De­cem­ber 30 which came in at - 1.1% vs -0.5% prior. It was ex­pected to drop to -0.7%.”

“The falls in in­fla­tion aren’t wholly un­ex­pected given the falls in en­ergy prices and that’s why the mar­ket is largely ig­nor­ing it after the big overnight moves. We get the EZ flash num­bers on Wed­nes­day and early ex­pec­ta­tions are for a drop into the neg­a­tive to -0.1% from +0.3% y/y. That might start get­ting ad­justed down­wards if the num­bers keep rolling out like they are to­day,” Lit­tle­stone said.

“The num­ber to watch on Wed­nes­day will be the core in­fla­tion num­ber. It held steady at 0.7% last month and if it drops by over 0.2 points or more then that will likely get a big­ger re­ac­tion from the mar­ket. While I like to look at the core num­ber in times like this, to see through the noise of en­ergy price moves, it doesn’t mean we can ig­nore in­fla­tion just be­cause the core doesn’t move.”

“The core is good to watch when en­ergy/com­mod­ity prices are volatile but when they are mov­ing in a sus­tained way the prices will be­gin to fil­ter down into the core num­bers. Prices of man­u­fac­tured oil or metal prod­ucts won’t re­ally change if we get tem­po­rary moves in the phys­i­cals but will if prices move over the longer term. When that hap­pens, Europe will start to re­ally face the de­fla­tion threat. This fil­ter­ing will be lag­ging by a few months so we may not see the ef­fects just yet. The prob­lem for the ECB is that by the time they are seen it will likely be to late to do any­thing about it,” ForexLive’s Lit­tle­stone con­cluded.

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