Based on Christine Lagarde’s latest press conference, it is clear that the ECB’s Governing Council view on the inflation outlook has evolved quite significantly. Since the December meeting, upside risks to inflation have increased, raising unanimous concern within the Council. Financial markets interpreted this as a signal that the first rate hike might come earlier than previously expected and bond yields moved significantly higher. The ECB’s forward guidance, which can also be considered as a description of its reaction function, suggests a rule-based approach to setting interest rates with clear conditions in terms of inflation outlook and recent price developments. In reality, a lot of judgment will be used as well
The global manufacturing PMI declined in January, which is partly related to the drop in the US, whereas the euro saw a further increase. The index jumped in Austria and moved higher in Germany, after having been stable for several months. The data were weaker in Greece and Italy. The improvement continued in Japan but the situation worsened in Brazil and Mexico with the respective PMIs dropping further below 50. The Chinese PMI weakened and has moved below 50.
Against the background of economic recovery (real year-on-year GDP growth of 14.4% in Q2 2021, followed by 3.9% in Q3 and 4.6% in Q4 according to Eurostat’s preliminary estimate), outstanding bank loans to non-financial companies (NFCs) and households continued to accelerate in the eurozone between May and December 2021. Although substantial comparison effects mean that the figure is still in negative territory, its impulse (measuring the variation in annual growth in outstanding loans over one year) improved to -0.6% in December 2021.
Although Germany is not the eurozone country experiencing the highest inflation rate, the trend is nevertheless uncomfortable. Consumer prices posted another hefty rise in January (+5.1% y/y, harmonised index), although this was less than in December 2021 (+5.7%). The end of positive base effects – caused by the end of the VAT rate cut in place in the second half of 2020 – did not therefore result in a marked fall in inflation.
According to the latest data from Johns Hopkins University, more than 22 million new cases were recorded around the world between 27 January and 2 February, a fall of 3% on the previous week. Nearly 61.3% of the world’s population has now received at least one dose of a Covid-19 vaccine. The last two weeks have brought an increase in visits to retail and recreation facilities in Spain, Belgium, France, Germany, Italy and the USA. The UK saw a bigger increase, probably due to the removal of nearly all health protection measures, whilst the downward trend in Japan continued.
