Europe twin woes intensify in Draghi job-to-inflation fight His predecessor in the job, Jean-Claude Trichet, said the ECB’s decision to cut rates was “a right one.” “It is perfectly legitimate that central banks are guarding themselves for deflation as well as from inflation,” Trichet told reporters in London on November. 21. “I don’t trust there is a real risk, but you have to guard in any case.” Masked Divergence The inflation rate masks considerable divergence across the euro region. In Germany, Europe’s biggest economy, annual consumer prices increased 1.2 percent in October, in Italy inflation was 0.8 percent and in France it was 0.7 percent. In contrast, Greek prices slumped 1.9 percent from a year earlier. “The biggest core country is taking a different course than the periphery,” said Jens-Oliver Niklasch, a fixed-income strategist at Landesbank Baden-Wueemberg in Stuttgart. Even so, he sees inflation back above 1 percent within the next year. ECB staff projections in September showed inflation at 1.3 percent in 2014. Next month’s forecast will incorporate the results of their twice-yearly consultation with euro-area central banks. Draghi pledged this month that the outlook will provide a “fuller picture” on just how long officials see insufficient inflation persisting. Stabilizing Joblessness The ECB president also said at this month’s decision that unemployment currently “looks like it is stabilizing” though “stabilizing at the top.” He reiterated on Nov. 21 in a speech surveying euro-area monetary and political efforts to foster growth that “for the sake of those who remain unemployed, we have to persevere.” This week’s jobless data may underline the significance of that mission. Only one economist out of 34 surveyed predicts a drop in the unemployment rate, and two see it increasing to 12.3 percent. Giada Giani at Citigroup Inc. predicts the rate in Draghi’s home country of Italy will reach a record 12.6 percent, more than double the comparable measure for Germany. With evidence on the euro-zone’s inflation and jobless predicaments published less than a week before the central bank officials’ forecast is presented, the ECB is wondering how it might respond with further action to aid an economy that expanded just 0.1 percent in the third quarter. Bloomberg News reported last week that policy makers are considering a smaller-than-normal cut in the deposit rate to minus 0.1 percent if more stimulus is needed to ward off deflation. For now, economists say the ECB won’t do anything when policy makers meet on Dec. 5. While a majority in a Bloomberg survey say the ECB’s most probable next move will be new liquidity injections such as long-term loans, 77 percent of those see it happening in the first or second quarter of 2014. Just 9 percent see Draghi taking action in December. “You can’t say that the ECB was wrong in cutting rates, even if it was a somewhat peculiar move on its part” said Marco Valli, chief euro-area economist at UniCredit SpA in Milan. “In December they won’t do anything, they will just present their updated predictions.”
